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Ideal Socioeconomy and Policies for Economic Rebirth

July 1999

Economic Planning Agency

Government of Japan

Table of Contents

  • Ideal Socioeconomy and Policies for Economic Rebirth
  • Preface To the era of Knowledge
    • Part1 Attainment of Optimal Industrial Society and Transformation into New Era
    • Part2 Preconditions for the Ideal Socioeconomy (responsiveness to future change)
      • 1.Knowledge Based Society
      • 2.Low-birthrate and Aging Society
      • 3.Globalization
      • 4.Environmental Restrictions
    • Part3 Objectives of the Ideal Socioeconomy:The Greatest Freedom and Smallest Dissatisfaction
      • 1.Concepts of Freedom Which are Founded on Individuality and Public Norm
      • 2.Socioeconomy Where Human Rights and Dignity Are Respected
      • 3.Economy That Sustains Growth
    • Part4 Concept of Ideal Socioeconomy(diversity and creative innovation)
      • 1.Socioeconomy Founded on Independent Individuality
      • 2.Society with Multiple Senses of Belonging That Are Connected in Multiple Relationship
      • 3.Role of Government in Socioeconomy
      • 4.Creative Reformation of Corporate Management
      • 5.Socioeconomy That Have Diverse Resources of Supplement
    • Part5 Value Perceptions as Standards for Economic Selection (new concept of efficiency, equality, and safety, and freedom as an element of social justice)
      • 1.Efficiency
      • 2.Equality
      • 3.Safety
      • 4.Freedom
  • Section 1 Value of Formulating "Ideal Socioeconomy in 21st Century and Policies for Economic Rebirth"
  • Chapter 1 Post-War Economic Growth and Historical Turnover
    • Part 1 Japans Post-War Market Systems
    • Part 2 The meaning of Historical Turnover
      • 1.Transition into The Era of Diverse Knowledge
      • 2.Low-birthrate, Aging Trend and Transition into Population Decline
      • 3.Globalization
      • 4.Increasing Constrains Caused by Environmental, Food, Resources, and Energy Problems
  • Chapter 2 Necessity to Apply the ideal Socioeconomy
  • Chapter 3 Basic Role of Ideal Socioeconomy in the 21st Century and Policies for Economic Rebirth and its Implementation
    • Part 1 Basic Role
    • Part 2 Implementing Policies
  • Section 2 Ideal Socioeconomy in the 21st Century
  • Chapter 1 Society of Diverse Knowledge
    • Part 1 Society where Diversity and Creativity are Exercised with Freedom of Economic Activity
    • Part 2 Society that Allows Individuals to Challenge Their Dreams
    • Part 3 Gender Free Society
    • Part 4 Individuals Diverse Areas of Belonging
    • Part 5 National Land of Diversity
      • 1.Internationally Competitive Urban Functions of Megalopolis
      • 2.Comparative Advantage of Local Cities as Sources of Individuality and Independent Development
      • 3.Multi-functional Roles of Hilly and Mountainous Areas
    • Part 6 Info-Communications Networking
    • Part 7 Human Resource Development
  • Chapter 2 Preparing for the Low-Birthrate, Aging Society and the Population Declining Society
    • Part 1 Importance of Economic Growth (Japan Continuing Growth)
    • Part 2 Long-Term Population Trends
    • Part 3 Age Free Society
    • Part 4 Society Conductive to Both Work and the Family
    • Part 5 Reliable and Efficient Social Security System
  • Chapter 3 Harmony with the Environment
    • Part 1 Formation of Cyclical Socioeconomy
    • Part 2 Addressing the Global Environment Problem
  • Chapter 4 Japans Position in the World
    • Part 1 Japan as Major World Player
    • Part 2 Futuristic Culture of Japanese-Born
    • Part 3 Role in Development of Asian Region
  • Chapter 5 Role of Government and New Concept of Public Norm
    • Part 1 New Role for Government
    • Part 2 New Concept of Public Service
  • Section 3 Government Policies for Economic Rebirth
  • Chapter 1 Forming Society of Diverse Knowledge
    • Part 1 Establishment of Markets and Business Environments
      • 1.Establishment of Transparent and Fair Markets and Consumer Sovereignty
      • 2.Establishment of an Attractive Business Environment
      • 3.Establish Environment that Allows Freedom of Choice and Challenges by Individuals
    • Part 2 Develop Diverse Human Resources and Promote Scientific Technologies
      • 1.Upgrade Education
      • 2.Secure Diversity and Vitality by Accepting Foreign Workers
      • 3.Promote Scientific Technologies
    • Part 3 Regional Economies and Social Infrastructure in the Diverse-Knowledge Society
      • 1.The Compact Megalopolis Concept (Designing Cities with Comfortable Space and Comfortable Time)
      • 2.Region Designing with Distinguished Industries and Cultures
      • 3.Rejuvenating Hilly and Mountainous Areas
      • 4.Establishment of Social Infrastructure That Supports Diverse-Knowledge Society
    • Part 4 Consideration for Relocation of Capital Function
  • Chapter 2 Preparing for the Low-Birthrate,Aging,and Declining-Population Society
    • Part 1 Reliable and Efficient Social Security System
      1. Public Pensions
      2. Medical Treatment and Nursing Care for the Elderly
    • Part 2 Age-Neutral Socioeconomy
    • Part 3 Recurrent-Style Life Course
    • Part 4 City Designing in the Low-Birthrate and Aging Society
      1. City Designing for Easy Walking
      2. Social Infrastructure for Low-Birthrate and Aging Society
    • Part 5 Addressing the Low-Birthrate
  • Chapter 3 Harmony with the Environment
    • Part 1 Creating a Cyclical Socioeconomy
      1. Formulate Behavioral Norm of RecyclingIndustrial Structure and Technological Foundation
    • Part 2 Addressing Global Warming and Other Environmental Problems
      1. Set Up International Framework and Provide Technical Support for Developing Countries
      2. Domestic Initiatives
    • Part 3 Social Infrastructure that Supports Environmentally Friendly,Safe,Sustainable Society
  • Chapter 4 Challenge to Achieve World Order
    • Part 1 Making Rules for the World Economy
      1. Influence WTO Negotiations
      2. Make Rules for International Financial Markets
    • Part 2 Japans Role in Asian Region
    • Part 3 Information Communication to the World
    • Part 4 International Economic Cooperation
  • Chapter 5 Role of Government
    • Part 1 Enhance Administrative Efficiency and Reconstruct Finances
      1. Simplify Organizations and Improve Project Efficiency
      2. Restructuring and Personnel Management for Improvement of Productivity
      3. Assuring Fiscal Soundness
      4. Fiscal Reconstruction Policies
      5. Assuring Transparency of Government
    • Part 2 Self-Supporting of the Local Government
      1. Promotion of Decentralization and Improvement of Self-Determination Ability of the Local Government
      2. Promoting Wider Cooperation of Surrounding Authorities
      3. Encouraging Citizen Participation
  • Chapter 6 Policy Initiatives for Recovery Path and Visions for New Growth
    • Part 1 Policy Initiatives for Recovery Path
      1. Current Domestic Economic Situation
      2. Policy Issues for Recovery Path
    • Part 2 The Macro Economy in the New Growth Path

Ideal Socioeconomy and Policies for Economic Rebirth

Preface To the era of Knowledge

In fiscal year of 1998, the Japanese economy experienced severe recession. The government, in response, must work with counter-recession policies while providing clear-cut policies for achieving the "ideal" Japanese socioeconomy after the economy rebounds from the current recession. The government must do this because today, as we stand at the end of the 20th century, the world's civilization is undergoing dramatic change.

This change is not symbolized by "progress" or "advancement" in the conventional sense, but by the creation of a new and historical stage of development. In other words, the modern industrial society is being superseded and transformed into a new society of diverse knowledge.

As Japan's socioeconomy recovers from the current recession, it must seek to evolve in a fashion that is suited to the knowledge based society. Indeed, the "ideal" socioeconomy should cover not only economic structures and activities, but also clearly prescribe preconditions, objectives, concepts, and value perceptions that will serve as the foundation for the new socioeconomy.

If we succeed in these endeavors, we can pave the way to a new era with confidence and pride.

Part 1 Attainment of Optimal Industrial Society and Transformation into New Era

Since the Meiji Restoration, Japan has worked diligently to create a modern industrial society. Methods that Japan employed were to learn technologies and organizations from the advanced countries of Europe and North America and to adopt the standards and systems deemed the most appropriate, and to implement such standards and systems nationwide under the guidance of the government and with the cooperation of industry. After the Second World War, in particular, all resources and capacity were directed toward economic development, namely the growth of modern industry. To this end, it is concluded that social consensus existed in the following forms.

  1. International position: Target distinctive economic expansion as one of the members of the Western liberalized countries.
  2. Industrial economy: Emphasize bureaucratic guidance and cooperation from industrial world, and nurture formation of industry based on mass production of standardized goods.
  3. Information and regional structure: Concentrate major intellectual activities in the capital of Tokyo, and create unified market in which other regions nationwide adopt the same standards and possess the same types of information as Tokyo.
  4. Education: Cultivate people who possess strong perseverance, sense of cooperation and common knowledge and skills so as to suit to mass production of standardized goods.
  5. Social structure: Focus on a work-oriented society made up of "company people" who are strongly loyal to the workplace, but weaker with regional and family connections.
  6. Corporate management: Place "Japanese-style management"-tradition of long-term continuous employment, anticipatory investment and group orientation-in high esteem.

In the background of the formulation of social consensus among the people, there was the value perception that efficiency, equality, and safety constituted justice. As Japan emerged from the ruins of the war, these methods of achieving economic prosperity were not mistake. In fact, it allowed rapid economic post-war recovery and long-term high-level growth.

As a result, Japan's per-capita gross domestic product overtook that of the United States in 1987 to become the world's highest among nations with 10 million or more people. At that time, it can be said that Japan had created the perfect modern industrial society-the "optimal industrial society." The dream of modern Japan has been realized 120 years after the Meiji Restoration.

In the latter half of the 1980s, however, even Japan could no longer expand industry based on the model of mass production of standardized goods. Those with surplus capital, unable to find sufficiently profitable real investment opportunities, turned toward two other avenues, namely overseas investments and asset-based investments, such as real estate and stocks.

At the end of the 1980s, Japanese real estate and stock prices skyrocketed, with the value of total real estate amounting to 2,137 trillion Yen, or 2.7 times that of the United States. Meanwhile, total current stock value of all TSE-listed companies amounted to 630 trillion Yen, even higher than the NYSE.

However, high values that do not reflect economic realities are to collapse. After reaching the peak in the end of 1989, Japanese stocks started to plummet in 1990 real estate prices declined dramatically soon after. The continuous cycle of growth in the Japanese economy had ended.

Consequently, many companies began to choke, and financial institutions were burdened with huge levels of bad debt. Today, in the summer of 1999, the Japanese economy is yet to achieve a full-scale turnaround.

The recession of the 1990s, especially the large downturn in fiscal 1997 and fiscal 1998, was not the result of periodical adjustment of an economic cycle, nor was it solely attributable to instability resulting from deterioration of management of financial institutions and corporations.

The fundamental problem is that the norm of Japan's modern industrial society, which had supported post-war economic growth, was no longer able to cope with major new trends in human civilization. To build a prosperous nation in the 21st century, manufacturing industries must utilize knowledge and technologies that will provide solid support for the nation's economic foundation. They must develop production technologies and a spirit that are found in the manufacturing practices of their predecessors. At the same time, they must obtain frameworks and attitudes conducive to expansion of functions and skills that will create the value of diverse knowledge.

We decided to begin this document by clarifying the concept of "ideal" socioeconomy around 2010. What we need today is not conventional change through the improvement of individual policies and systems, but specific reforms of systems and policy that target reforms of socioeconomic concepts and structures. Reforms already under way also play a role in this context.

Part 2 Preconditions for the "Ideal" Socioeconomy (responsiveness to future change)

Around 2010, Japan's socioeconomy must fulfil the following preconditions.

  1. Knowledge based society

    In the diverse-knowledge based society of the future, the constant creation of new knowledge cause economic and cultural vitalization. Responding to this will require creation of environment where information and knowledge can be easily received from and transmitted to the world. It will also require a social framework and spirits to nurture organizations and people filled with individuality and creativity. To realize this, the concepts of child raising, education, and employment practices, as well as of regions and the family, will change their style to suit this environment.

  2. Low-birthrate and aging society

    The problem of low-birthrate and aging population will become more serious as we enter the 21st century. While responding to this problem, we should institute systems and practices that can withstand the decline in labor force beginning around 2005. We also should maintain diverse supply of resources that has the vitality for constant reforms and can compensate for deficiency of functions and other important elements.

  3. Globalization

    The 20th century was an era of continuous ideological struggles and confrontations between groups of nations. The 21st century will be symbolized by the establishment of national groups in each region, with each nation competing for economic and cultural influence internally and externally. In this situation, goods, money, and information/knowledge, as well as people and corporations, will move regardless of national borders. In Japan's "ideal" socioeconomy, not only should goods, money, and information/knowledge flow in and out freely, but also Japan should become "distribution center" for worldwide movement of them.

    The Japan of the future world should aim to achieve social convenience, economic efficiency and enjoyment of life that attract various people and corporations (both domestic and foreign) and have them choose it as their activity center.

  4. Environmental restrictions

    The nation's supply system, based on mass production of standardized goods, must inevitably be replaced from the viewpoint of environmental protection, as it has the side of mass consumption and mass disposal. In addition to the manufacturing sector where resources are utilized to produce goods, an "inverse-manufacturing" sector, which turns products into resources, should also be created.

Part 3 Objectives of the "Ideal" Socioeconomy: "The Greatest Freedom and the Smallest Dissatisfaction"

  1. Concepts of freedom which are founded on "individuality" and "public norm"

    In the modern industrial society, the perception that modernization was universally correct permeated throughout social life, and it was believed that there exists standard (or yardstick) for happiness of citizen's life. In the era when mass production of standardized goods brought improvements of high efficiency, it should be affirmed that the government's determination of standards for products and services was assumed to be the best way to achieve economic well-being.

    In the diverse-knowledge based society, products and services, as well as employment, job systems and people's sense of belonging, will also diversify. To this end, it is important for the society as a whole to maximize individuals' freedom that will allow people to choose their life goals and the steps toward achieving such goals, according to their specific tastes.

    Pursuit of individuals' freedom will require creating concept of "public norm" which should be mutually accepted. To ensure that many independent individuals will respect each other's freedom while pursuing competition-based economic growth and enjoyment of life, it will be essential to have common understanding of "public norm" that the people who constitute society should respect.

  2. Socioeconomy where human rights and dignity are respected.

    In the diverse-knowledge based society that is characterized by ongoing low birthrate, aging population and globalization, maintenance of permanent economic growth will require dazzling appearance of new technologies, industries and cultures fostered by individuality and creativity brushed up through intense competition. Nevertheless, there will be a non-trivial number of people who fail in the competitive society and who are socially handicapped. In the "ideal" socioeconomy, the rights of all the people will need to be completely respected, and opportunities to challenge for success and preservation of dignity as human beings must be maintained.

    However, what should be respected are the rights of people, not economic vested interests nor the governmental authority. Livelihood protection and rescue of those who failed must not be misused for vesting economic interests. In the "ideal" socioeconomy, "safety net" that fully protects the rights and dignity of all the people will be necessary. On the other hand, it is also important not to allow major dissatisfaction to emerge from those who will take economic and social burdens in return for them.

    The "ideal" socioeconomy must have system to pursue equilibrium in which dissatisfaction throughout the citizenry becomes the smallest.

  3. Economy that sustains growth

    In the midst of a decreasing population, growth of national economy should be maintained throughout the entire economy as well as on a per-capita basis. This is because contraction of overall size of the economy will have distressing consequences, such as:

  1. Facilities and liabilities of the government and private sector will become excessive.
  2. Investment opportunities for the government and private sector will decrease.
  3. Decaying facilities and deadlock personnel affairs will be invited, causing high potential for excessive emphasis on vested interests.
  4. Adoption of new technologies and new organizations will be restricted, inviting cyclical decline in economic vitality.
  5. The next generation will lose dreams, while active organizations and individuals will flow out overseas.
  6. The burden that the small number of active people undertake will become excessive in order to support the lives of the elderly and to replace decaying facilities, causing potential for emotional confrontations between generations.

    The "ideal" socioeconomy must have diversified resources for supplement and must provide the system and spirits to ensure that rapid population decline will be put the brakes on.

Part 4 Concept of "Ideal" Socioeconomy (diversity and creative innovation)

Assuming that the socioeconomy satisfies the above preconditions and it can achieve its objectives, the following socioeconomic structure and spirits will emerge.

  1. Socioeconomy founded on independent "individuality"

    The first thing we can see is socioeconomy founded on independent "individuality."

    As human civilization approaches the era of diverse knowledge, it is impossible to socialize the risks by Japanese post-war system of bureaucratic guidance and cooperation among various industries. It is also impossible to aim for high-level growth via Japanese-style management. Naturally, some aspects of Japanese-style management, such as long-term continuous employment and seniority-based salary system, cannot be maintained as before. Social system in which "company people," a key element under conventional system, occupy its major portion, will also become unsustainable.

    In the future, the entire foundation of the socioeconomy will be built on independent individuals. Each individual will show his/her own characteristics and possess the rights to choose anything according to his/her tastes. Accordingly, the principle of "vertical" relationships prevalent in behavior to date will be replaced by "horizontal" relationships in which individuals, corporations and the government are equal. Social management will be based on mutually interactive behavior.

    By contrast, functional organizations will require speed and clarity of decision-making. Conventional Japanese organizations are marked by multi-layered hierarchies and adopt collectivist management styles where intentions are communicated from the bottom up. The "ideal" socioeconomy will demand organizational activities in which there is close correlation between decision-making at the top and implementation by its associates.

  2. Society with multiple senses of belonging that are connected in multiple relationship

    Maintaining and improving society founded on "individuals" will require creation of excellent environment for communication. That will start once all the people have acquired the idea, practice and skills to think and express themselves. Education should place high priority on cultivating people with individuality, creativity and ability to receive and transmit information. Ideally, all the people would be expected to have the authority, skills and equipment enabling them to receive and transmit information anywhere and anytime, and also to have diverse and multiple connections with each other.

    Moreover, individuals will choose their sense of belonging according to their personal tastes. To date, people have organized large or small families (blood-based communities), regional societies (region-based communities), and work groups (workplace-based communities), and many have totally belonged to only one of these communities. Post-war Japan has seen the major emergence of "company people" who have the strong sense of loyalty and belonging to their workplace.

    While some will continue to remain "single sense of belonging" people who solely belong to family or workplace, many will become "multiple senses of belonging" people who have senses of belonging to groups according to their hobbies (hobby-based communities). In this regard, the "ideal" socioeconomy will become highly stimulating and fluid urban society in which people with diverse jobs, beliefs, and hobbies live together.

  3. Role of government in socioeconomy

    The role of government will be purified to set up social conditions allowing independent individuals to make free choices based on their personal tastes and to express their individuality and creativity, as well as to clarify rules that support such objectives and undertake appropriate operation.

    Conventionally, the government has determined the policy frameworks, decided the schedules and guided the socioeconomy, while private sector companies have worked within those frameworks. The people, as consumers, have chosen products and services with standards decided by the government.

    In terms of supply of standardized products and services, such system was efficient, but was lacking in terms of functionality to develop new technologies and new forms of supply. Since decisions of policy frameworks by government put importance on precedents and past experience are respected, they are not conducive to new adventurous businesses or develop breakthrough technologies. The introduction of new technologies and products into Japan in the post war has resulted from excellent precedents set in overseas countries.

    In the society of the future, each individual will choose products and services based on his/her own tastes and use such products and services as he/she likes. To this end, the role of government will be to determine socioeconomic rules that will allow individuals to choose products and services according to their tastes. Government's role will also be to undertake surveillance to ensure that such rules are obeyed, as well as to swiftly and appropriately respond to unprecedented events.

    In the "ideal" socioeconomy, all the people will be able to sell products and services according to their own skills and desires, while individual consumers will be able to choose such products and services according to their tastes, based on principles of self-responsibility. In other words, freedom of new entrants and consumer sovereignty will be established. This will spur development of new technologies and products, further stimulating demand. An important point to note here is that people who sell products and services to numerous consumers will have "suppliers' information disclosure obligation" compelling them to accurately and clearly disclose every detail of the performance and function of their products and services.

    On the other hand, the rights of consumers to conceal details of their consumption activities must also be protected. Protection of privacy is also an essential part of consumers' choice.

  4. Creative reformation of corporate management

    In the "ideal" socioeconomy, private-sector corporations and associations will become the main body in the economic activities that organize activities of individuals as units of society.

    Given intense competition, such corporations and groups must be sensitive to market trend all the time, and also must work hard to develop new technologies and designs, improve innovative management style and cultivate superior human resources.

    In the conventional modern industrial society, since the benefits of mass production of standardized products were considerable, large enterprises with massive facilities and organizations had an advantage. Such organizations (corporations and associations) existed as asset holders that were remote from people, while people (individuals) were fitted in as components of the organization.

    In the diverse-intelligence socioeconomy of the future, organizations will become composed of people.

    In a world where creation of new values become major source of economic growth and corporate profit, the most important factors of production are knowledge, experience, and sensitivity-factors that can never be separated from human beings. Continuation of ongoing creative innovation is necessary for corporations and associations to survive and prosper. Future corporate management must build in such inertia into their organization. Even nonprofit groups are not exceptions. In the "ideal" socioeconomy, corporations and associations will compete with each other and evolve into entities that can efficiently supply higher levels of satisfaction.

  5. Socioeconomy that have diverse resources of supplement

    As the low-birthrate and aging trend are getting serious issues, it will be crucial to have supplement of strong stimulation, necessary functions and essential elements in order to build socioeconomy that fosters overall economic growth and collects/distributes goods, money and knowledge/information in global community. To this end, we will need active input of people, regardless of age or gender, including supplementation of functions from overseas.

    First, it will be important to build frameworks that make it easy for the elderly and those raising children to work. Key factors here will include reduction of working hours, development of industries and facilities that outsource domestic affairs and child-care duties and urban planning that will alleviate the time and psychological burdens associated with commuting to and from work, schools, and hospitals. Widespread adoption of work schedules and practices that fit the elderly will also be needed. In addition, systems must be needed to allow ample supply of products and services required ensuring enjoyable and comfortable lives at reasonable prices. In particular, if we call to mind the low-birthrate and aging population society after 2007, satisfactory social management may become impossible without diversity of supplementary input into various fields from a broad range of sectors, from cultural stimulation and education to lifestyle support services and nursing care.

    We should not restrict our considerations of the socioeconomy within the limitations of population nor to specific cultures or customs. In addition to these, we should consider diversified resource of supplement by utilizing foreign companies and foreign people with specialized and technical backgrounds.

    We should also consider necessary frameworks for cordially accepting them, coexisting and promoting interaction with those diversified people.

Part 5 Value Perceptions as Standards for Economic Selection (new concept of efficiency, equality, and safety, and freedom as an element of social justice)

At the root of creating, maintaining, and appropriately managing the "ideal" socioeconomy, there must be value perceptions that serve as yardsticks for selection of changing direction where socioeconomic goes.

Post-war social value perceptions that shaped the modern industrial society defined "justice" as combination of Efficiency Equality, and Safety. Although the definition of justice will continue to include these three elements, more clear and conscious definition is required. The addition of another element, Freedom, will strongly support innovations stimulated by choice according to taste and ceaseless competition.

  1. Efficiency

    Efficiency has been the fundamental element of "justice" in the modern industrial society and received top priority in the earlier half of the post-war period (1950s and 1960s). Even in the "ideal" socioeconomy of the 21st century, we must focus on efficiency not only in terms of strengthening industrial competitiveness and technological innovations, but also in terms of allocating and utilizing human resources and social facilities. Resources, products, services and other elements that cannot be efficiently created in Japan must be supplemented via globalization. As the low-birthrate and aging trend continues, Japan will be oppressed more than ever to raise efficiency of society as a whole.

  2. Equality

    Equality has become an important part of justice in modern times, receiving worldwide emphasis in the post-war period.

    There are two types of equality: "Equality of opportunity" in the sense of providing equal opportunities to challenge for all the people, and "equality of result" where the emphasis is on assuring fairness through adjustments of income differentials and standardization of consumption. In the 20th century, many nations have tried social mechanisms to ensure "equality of result" beforehand through nationalization of production stages and bureaucratic controls. The results, however, have not been successful.

    In the "ideal" socioeconomy, "equality" will remain important, but its meaning will become combination of "equality of opportunity and subsequent adjustments." In societies where major means of production are people-their knowledge, experience, and sensitivities-, it is difficult to nationalize such elements of production and place them under the exclusive control of corporations. Here, equality means that all the people have the opportunity to participate in anything according to their own will. Economic differentials that emerge as a result are to be corrected and the system (safety nets) should be established so that everybody can prosper.

  3. Safety

    Safety has received the top priority in terms of justice in post-war Japan, and will continue to be crucial justice in the future.

    The primary elements of safety are peace and public security. Peace keeping and good public security must continue to be protected in the future. Once competitive society founded on free "individuality" is established and the need for diverse supplementation is recognized, perspective and method of maintaining peace and public safety must be set up with social approval.

    The secondary elements of safety are avoidance of accidents and disasters. In the post war, huge costs were incurred for prevention of accidents and disasters, prompting authorities to implement tighter labor standards and safety standards for various products. However, too much emphasis was placed on ensuring that safety measures satisfy set standards, causing deficiencies of taking appropriate measures. Although further effort must be made to prevent accidents and disasters, government standards should not be the sole determinants. Rather, methods that are suitable for each situation should be adopted.

    The third element of safety is preservation of assets. To date, the government has implemented regulations designed to protect the assets of citizens, such as financial protection and market entry regulations based on supply-demand perspectives. This has not only limited individuals' freedom of choice, but also caused social losses and stagnation of industrial technology. In the future, protection of assets by the government should be limited in principle to providing accurate information and establishing safety nets. People should be aware that they take risks based on their own decisions.

    The fourth aspect of safety is health. Post-war Japan made major efforts to eliminate pollution and ensure the availability of medical care for all the people. In the future, people should be able to live more healthy lives than ever, based on the principles of freedom of choice for individuals, the concept of "public norms", rules and appropriate responses by the "government" to accidents.

    In the "ideal" socioeconomy in particular, beautification and protection of the global natural environment should be added as definitions of justice by expanding the concept of "safety" to the global-wide level. In other words, in the "ideal" socioeconomy" beautification and protection of the global environment are aspects of justice that ensure the long-term safety of the entire human race.

  4. Freedom

    Historically, freedom has not been acknowledged as justice in Japan except trade of industrial goods. After the war, when conflict arose between efficiency, equality and safety, nationwide debate ensued and the issue was discussed as a political problem. Then, agreement was reached at the certain point, following deliberation among relevant government agencies. Compromises, such as between efficiency and equality (for example, installation of uniformed facilities covering entire nation) or between efficiency and safety (for example, automobile speed limits), were made, and the lines separating various aspects of justice shifted according to technological progress and social trends.

    However, since freedom was not considered as justice, when conflicts arose between freedom, efficiency, equality, and safety, then freedom would be suppressed due to decisions of administrative authorities, before the issue would reach the stage of political debate.

    In the "ideal" socioeconomy, freedom has equivalent importance as efficiency, equality, and safety as an element of justice. Without freedom, the formation of "horizontally integrated" society founded on "individuality" would be impossible. Improvements of productivity and sustenance of economic growth spurred by severe competition would also be impossible.

    In order for the "ideal" socioeconomy to possess economic frameworks and spirits to pursue prosperity and enjoyment through individual independence and competition, "freedom" must be recognized as part of social justice. If this point is not made clear, Japan cannot become a major player in the global economy.

Section 1 Value of Formulating "Ideal Socioeconomy in 21st Century and Policies for Economic Rebirth"

Chapter 1 Post-War Economic Growth and Historical Turnover

Part 1 Japan's Post-War Market Systems

One feature of the Japan's post-war market system is that it emphasized and utilized the benefits of harmony, being founded on stable relationships between the principal economic elements-notably individuals, corporations, and the government-and between the people that constituted organizations. The system has functioned with relative effectiveness, when progress was enabled through the introduction of technologies mainly from Europe and North America, and objectives were clear and risks were minimal. As Japan approached the terminus of its "catch-up" economic growth period, however, it needed to carve its own frontier paths. Accordingly, pursuit of efficiency and principles of competition became crucial, creating pressure to modify the system that had hitherto placed so such importance on harmonious relationships.

The bubble economy of the late 1980s can be partly attributed to the background that Japan's economic system, which had evolved since the post war, could no longer adapt to changes of the times. With no perceivable new frontiers in which to invest following the end of the "catch-up" process, large volumes of capital had nowhere to go except the asset markets. This led to sudden plunges in real estate and stock prices. Even though the 1980s were at a historical turning point and domestic systematic reforms were required, the need for full-scale socioeconomic reform was not sufficiently recognized while the overheated economy was expanding. As a result, the previous system was sustained by inertia. The bottleneck caused by the incompatibility between historical trends and realities of the current system became an urgent problem in the wake of economic stagnation associated with the collapse of the bubble in the early 1990s.

Part 2 The meaning of Historical Turnover

The trends of a major internal and external historical turnover, which necessitates large-scale reformation in Japan's socioeconomic system, can be broadly classified into the following four movements.

  1. Transition into the era of diverse knowledge

    We have already seen a trend in which added value derives more from volume and content of information and knowledge, as well as technologies of processing them. This trend will develop strongly. As a result, value created by knowledge and idea will become a source of power driving increased economic growth, corporate profitability, and people's satisfaction levels.

    Since the latter half of the 1980s, info-communication technologies have facilitated sudden advancements in networking in addition to compactness and high speed. Practical applications and the subsequent rapid spread of the Internet since the early 1990s has further accelerated networking, bringing the world together as one in terms of information distribution. These innovations in info-communication technologies and widespread acceptance of them formed a new foundation for growth, creating the potential for enormous improvements in the efficiency of the overall economy.

  2. Low-birthrate, aging trend and transition into population decline

    The population of Japan has grown fourfold since the Meiji Restoration around 130 years ago. In the next 10 years, it will begin to decline. It is difficult to maintain the conventional systems and policies that have functioned well while the population was increasing, such as employment systems, pension, medical treatment, and other social security systems, as well as policies of improving foundations of cities, national land. Thus, structural reforms are required. It will have a significant impact on industry, labor, and education systems.

  3. Globalization

    International barriers to the trade of goods and services, as well as international capiral flows, have been lowered, creating stronger mutual interdependence among many markets. Due to growth of developing countries and the shift of Eastern European countries into market-based economies, scale of global market has quickly expanded. Innovations in info-communication technologies and decrease of telecommunication costs have stimulated a huge increase in the volume of information exchange not only domestically but internationally.

    Meanwhile, instability and other problems of international capital flows have been created. To increase the benefit of globalization, we have reached a stage where we need to find ways to correct the deficiencies of globalization.

  4. Increasing constraints caused by environmental, food, resources, and energy problems

    The environmental issue has grown to affects corporate activities and people's everyday lives profoundly. Socioeconomic systems founded on mass production, mass consumption, and mass waste helped bring material prosperity to advanced countries. However, a growing number of unsolved environmental problems, including the global environment and environmental burden of waste, have suggested the limitations of the current socioeconomic system.

    The problems of food, resources, and energy also have the potential of limiting economic activity. Since various limitation factors have appeared in securing food supplies to meet large increases in demand, there is potential that worldwide supply-demand conditions of food may become tight in the mid-long terms. Moreover, the current state of excess supply of energy-after the convergence of the second oil crisis-may not continue in the future. raising populations in the developing countries and growing dependence on external energy sources among Asian countries are the main risk factors in the future.

Chapter 2 Necessity to Apply the "Ideal" Socioeconomy

The socioeconomic system that worked effectively so far can no longer function in the time of historic turnover. Today, the system urgently needs fundamental reform. This reform cannot be completed by gradually fixing the current system following the extension of conventional system. A total transformation into a completely different framework has to be done, covering everything from human behavior to concepts.

Challenges we are confronting today is not how we are to plan and adjust the details of the consent that was made by total population. First, the people need to decide which direction to go. Then, it is needed to give the results to corresponding direction.

When making major decisions, it is extremely important that a picture of the envisaged result and the measures to realize it be clearly indicated. Section 2 of this report is the outline of the directions that we should choose as we approach the 21st century and the "ideal" socioeconomy that will evolve as a result. Section 3 describes policy framework which is needed to attain such goals. The people need to choose with consent the "ideal" socioeconomy shown in Section 2 and we need to proceed with confidence to develop a new socioeconomy.

Chapter 3 Basic Role of "Ideal Socioeconomy in the 21st Century and Policies for Economic Rebirth" and its Implementation

Part 1 Basic Role

The basic role of the "Ideal Socioeconomy in the 21st Century and Policies for Economic Rebirth" is classified into three elements: Clarify the direction of selection regarding Japan's ideal socioeconomy at the beginning of the 21st century Determine fundamental directions and issues of economic management that the government should address over the next 10 years, while clarifying important policy objectives and policy measures and Offer guidelines for household and corporate activities.

Today, in the time of historical turnover, economic activity is shrinking because of inability to forecast the future. In such time, it is important to present the ideal socioeconomy in the 21st century and policies for economic rebirth.

In addition, it is also important that we inform the rest of the world about the direction socioeconomy that are to be heading for and relevant policies.

Part 2 Implementing Policies

In order to create the "ideal" socioeconomy, we must steadily promote policies along with the presented policies. In particular, the government will swiftly launch to materialize policy issues whose rough direction in the future are only presented and will declare the results in the form of policy programs that are easy to understand.

In order to effectively promote policies in this report, the Economic Council will each year evaluate the internal and external economic situation, the status of policy implementation and the status of policy materialization. The Council will then report to the government on subsequent policy management direction in accordance with economic management of each fiscal year. Also, in the event and the prediction of sudden change in circumstances surrounding Japan, the Council will immediately review the outlook described in this report and make proposals for measures that should be taken.

(Note: In line with reforms of central government ministries and agencies, the Economic Council will be disbanded. However, the duties of the Council as stated in this Part will be carried out as part of duties of the Council on Economic and Fiscal Policy, to be located within the Cabinet Office.)

Section 2 Ideal Socioeconomy in the 21st Century

Under the condition of globalization, we should build a socioeconomy for the 21st century that meets the following three tasks.

First, the socioeconomy based on mass production of standardized goods must transform into socioeconomy compatible with the era of diverse knowledge.

Second, we must reform systems to adapt to the aging, declining-population society, while raising productivity and maintaining vitality.

Third, we must overcome the limitations of emerging environmental problems and build socioeconomy that harmonize with the environment.

Japan is not the only country, which are confronting those tasks. Sooner or later, many countries worldwide must altogether solve them. If Japan can build socioeconomy that addresses these issues, it will earn the respect in global community and actively participate in the establishment of world order as a core player in the community.

In order to build such socioeconomy, expansive freedoms is necessary so that individuals can challenges their dreams with perpetual spirits of innovation under the principle of self-responsibility. We also must have a reliable safety net. In addition, the notion to leave "public" matters to the government must be discarded. Instead, individuals are required to address such "public" matters through regional communities, NPOs.

Chapter 1 Society of Diverse Knowledge

The fundamental principles of behavior in the society of diverse knowledge are "individual" freedom and self-responsibility. People will have more freedom to choose their lives according to their personal value perceptions. In such a society, creativity and diversity will be respected, and people will demonstrate their individuality more strongly than ever. There will be an environment that allows people to realize their dreams, and to work actively toward self-fulfillment.

Part 1 Society where Diversity and Creativity are Exercised with Freedom of Economic Activity

At the economic level, freedom of market activity will assume top priority, and the diversity and creativity demanded by knowledge based society will be sufficiently excersized. Utilization of market mechanisms becomes the principle of top priority. All types of frameworks and systems will be assembled in a way that does not defy such priority. Economic rules and systems will be positioned as infrastructure promoting free activity, and there will be a transition to the concept of "fundamental principle of freedom." Rules are indispensable even in free markets, but such rules must have accountable objectives, and all the rules are recognized to have accountability.

Consumer sovereignty will be established by liberalization of new market entrance by deregulation of supply-demand adjustment rules, as well as the elimination of information asymmetry. On consumer sovereignty, free choice in the consumers' market will be appropriately reflected in production of goods and services. Accordingly, market mechanisms will work effectively based on the principle of self-responsibility.

In the society of diverse knowledge, there will be a need for concepts that differ from the lateral thinking of the past. Interaction with foreign people and cultures can be a beneficial step toward gaining such concepts. The entry of foreign workers with specialized and technical skills, as well as foreign researchers and students will become more active as a positive step.

Part 2 Society that Allows Individuals to Challenge Their Dreams

Many people will challenge their dreams, and this will give rise to new levels of creativity. It is recognized that reward level will be high enough to challenge and individuals are independence based on self-responsibility.

In such a society, there will be potential to earn considerable income by producing creative value or taking risks. Although there is potential for large discrepancies between the incomes of those who succeed versus those who fail, remuneration reflecting challenge and the associated risks will be appropriately evaluated, and the resulting differential will be accepted. A precondition of this is that all people will be given fair opportunities, and that a minimum safety net and a chance to try again will be assured for those who fail.

In order to provide "fair opportunity," society will have a certain level of flexibility. "Unfair opportunity," where people with vested interests gain favor, will be eliminated. To assure "potential for a second chance," an external labor market that does not obstruct job changes will be formed, with a diversity of choices for locating one's most appropriate position. In addition, for those who fail in business, frameworks that allow smooth liquidation will be in place.

Part 3 Gender Free Society

Men and women will be able to freely demonstrate their individuality and talents in all areas of society, while respecting each other's rights and sharing responsibilities, with gender being a non-issue.

The fixed notion of roles, where genders are separated according to the "men go to work, while women stay at home" principle, will be discarded, and social systems and other mechanisms that make it difficult for women to make diverse lifestyle choices will be reassessed.

In the area of employment, gender will be also irrelevant. Individuals will take the initiative to choose their profession, and environments that allow them to sufficiently demonstrate their abilities and lead a fulfilling professional life will be put in place.

Part 4 Individuals' Diverse Areas of Belonging

In a freedom-based society where individuals pursue their dreams, the degree of individuals' independence will increase. Accordingly, their areas of belonging will diversify, and their range of choices will expand. The typical notion of single-sense of belonging to the company will be revised, and multifaceted and diverse areas of belonging will emerge. The role of the family will grow in relative importance, and new areas of belonging such as hobby circles and sports clubs will be established.

Complex human networks will be formed, creating coexistence of diverse value perceptions and allowing people to attain self-fulfillment. While individuals will have an increased sense of social involvement, the humanity of individuals and sense of social cohesion will be maintained. In this situation, NPOs will play an important role in supporting society through individuals' increased sense of social involvement.

Part 5 National Land of Diversity

The layered structure of Japan, where Tokyo stands at the apex, will be transformed into an efficient and productive structure by respecting autonomy and diversity of individuals and regions. At the same time, affluence, such as in terms of comfortable time and comfortable space, will increase and continue, and safety and peace of mind of the national land will realize. For example, predominant feature of each regions-the urban functions of international competitiveness in megalopolis, comparative advantage of local cities as sources of individuality and independent development, and multi- functional roles, such as functions to protect land and environment, of hilly and mountainous areas-will become more independent and strategically advanced. At the same time, organic and horizontal-based cooperation and interaction between each regions will be assured, fostering further advancement of those functions through sharing and mutually compensating them.

  1. Internationally Competitive Urban Functions of Megalopolis.

    Megalopolis will fulfill advanced urban functions and information transmission functions, and will contribute to maintenance and expansion of overall vitality in Japanese socioeconomy. Moreover, the urban function will become more advanced, allowing cities to engage in international competition. In other words, such functions as international transactions, general business operations, and management decision-making will be manifested to the fullest extent, and cities will serve gateways functions as a huge hub linking domestic and international flows of people and information.

    Furthermore, from the aspect of providing living environments which is compared favorably as international cities, comfortable "space" that will bring attractive living standards and comfortable "time" that will be created by reducing travel time as far as possible will be assured, raising levels of safety, comfort, convenience, and efficiency.

  2. Comparative Advantage of Local Cities as Sources of Individuality and Independent Development

    In local cities, the rural functions of local cities-such as commercial, business, education, and culture-as well as information transmission function, will become more advanced, while comparative advantage fostering growth-supporting international competitiveness will be created, and will also become more advanced. As a result, the concentration of function into Tokyo will be transformed into decentralization of function. In this context, individuality and independent regional development will be accomplished instead of flying-geese development dictated by Tokyo. The resulting vitality of regions will propel the entire national economy.

  3. Multi-functional Roles of Hilly and Mountainous Areas

    Hilly and mountainous areas will maintain and demonstrate multi-functional roles of national land and environmental protection. To this end, they will serve as a breakwater to protect not only local citizens but also the lives, assets, and prosperous living standards of the nation's citizens, including those in the cities. Thus, in hilly and mountainous areas, industrial and distribution bases will be established allowing sufficient income-earning opportunity to allow permanent residency, necessary living foundations will be maintained, and understanding of these multi-functional roles will be promoted at the national level. As a result, the production capacity and the multi-functional roles of national land and environmental protection, possessed by the regions, will be manifested perpetually.

Part 6 Info - Communications Networking

Innovations in info-communication technology will serve as a new base for technological development for the 21st century, and will extend to every nook and corner of the socioeconomy, significantly influencing the lives of individuals, corporate activity, and national land structure.

Regarding the lives of individuals, the one-way style of information flows provided by conventional media will evolve into two-way flows via info-communications networks, strengthening positive communication functions of individuals vis-a-vis society. This will benefit the formation of broad human relationships.

At the corporate activity level, traditional corporate group setups, where fixed transactional relationships utilize the benefits of information sharing, will be transformed into more diversified relationships via exchange of information from outside the group. The nature of the corporation will become more individualized, without dependence on Keiretsu or industrial sectors.

The overall results of all these will dramatically increase productivity of the overall economy, driven by cost reductions and accelerated decision-making within organizations. The roles of information communicator who transmit "knowledge" to information networks, and of those who create "knowledge," will become vitally important. Moreover, new technological innovations related to info-communications networks will play an important role in economic development and vitality.

Part 7 Human Resource Development

Knowledge is created by people. To this end, progress will depend on whether or not an education system that nurtures free idea of individual can be built. A repleted educational environment for children achieved through cooperation with regional societies, together with the existence of distinctive schools, will greatly expand the selection for education. In addition, learning opportunities for people in the workforce will be greatly expanded, while a fusion of technologies, skills, and intelligence will be promoted through developing job skills and evaluations based on performance. Then, human resource who will lead the new era of knowledge will be developed.

Chapter 2 Preparing for the Low-Birthrate, Aging Society and the Population Declining Society

At the beginning of the 21st century, Japan's population will peak and begin declining. To be prepared for this dramatic change, a new socioeconomic system will be built that will minimize the negative aspects of the new era while maximizing the positive aspects.

Part 1 Importance of Economic Growth (Japan Continuing Growth)

Although declining population will have a negative socioeconomic impact on both supply and demand sides, a certain level of overall economic growth will be important in maintaining the vitality of the nation. If, for instance, the economy experiences prolonged contraction, government finances will need to be successively curtailed, making it difficult to enable financial management that meets the diversified needs of citizens. And in the current climate of ballooning fiscal deficits, the burden of debt repayments by future generations will become heavier. Moreover, the scale of new investments will contract, creating potential for delays in accumulation of the latest technologies and know-how. As a result, economic activity will decline, making it difficult to provide an environment where young people can pursue their dreams and where workers can have future security.

To avoid this scenario and maintain economic vitality, it is vitally important to raise productivity, which will compensate for the negative aspects of the declining population and play an important role in maintaining private-sector demand-driven economic growth overall.

Part 2 Long-Term Population Trends

Having a look over 2010, the population decline will not gather significant pace. And there will be considerable scope for increased productivity driven by promoting structural reforms and other factors. Accordingly, the beginning of the 21st century will have ample potential for maintaining medium- and long-term positive economic growth.

However, in the longer term, if the pace of population decline accelerates whitout outstanding technological innovation, the economy may fall into contraction mode in a short time. And if this leads to reduce economic vitality, it will cause a drain of corporations and individuals, which could spawn a vicious cycle of further economic decline. To avoid this risk, it would be preferable not to allow a rapid population decline to happen.

Part 3 Age Free Society

People will be able to enter schools and the labor force, or retire from work, based on their personal desires and capabilities regardless of age. Moreover, there is potential for such opportunities to recur, providing individual life plans to become recurrent system with diversity.

Uniformity and the herd mentality of education will be phased out, and people will be able to determine their own paths based on their life plans that suit their particular abilities and aptitudes. After the completion of compulsory education, people will be able to pursue further education without concern for age, based on their individual abilities, aptitudes, and career plans. Furthermore, even after entering the work force, people will be able to take leave, resign, or continue working while freely selecting further educational opportunities, throughout their lives. They will be able to engage in diversified academic activities by pursuing advanced education or receiving education in other fields.

Even in senile state, they will be able to continue working as they desire, facilitated by diversity and flexibility of working methods and reducing working hours. On the other hand, they can also retire from their companies early and become involved in regional, NPO, and other activities. Rather than work in one company for a long time, they will be able to make multiple career choices from a diversity of employment opportunities. Awareness of these freedoms will grow, and job-changing will become more prevalent.

Part 4 Society Conducive to Both Work and the Family

Both men and women will be able to lead fulfilling work and family lives, benefiting from diversity and flexibility of working methods, as well as reduced working hours and the availability of child-minding, nursing-care, and other facilities. In the home, women will not be burdened with all the housework and child-raising duties such duties will be shared among family. Workers who have temporarily taken maternity leave, child-care leave and nursing care leave will be able to return to job as their desire without being handicapped by the leave taken. An environment in which people can continue working while raising children and providing nursing care will be provided, assisted by measures of reducing working hours which takes family responsibilities of workers into consideration.

For workers who resign for child-raising and nursing responsibilities, there will be an open labor market that allows them to work again smoothly.

Part 5 Reliable and Efficient Social Security System

In the low-birthrate and aging society, for the people to challenge their dreams and actively participate in economic and social activities, a reliable and efficient social security system will be necessary, including pension, medical care, and nursing care plans. Such a social security system will, in turn, possesses the following preconditions.

  1. As for public pension plans, people are to be able to predict future pension benefits and insurance premium payment in detail. The system is to have long-term stability. Income security for the elderly will be assured by strategic combination of public pensions and private saving due to self-support.
  2. From the perspective of fairness between generations, future generations are not to be faced with excessive insurance premium burdens.
  3. There are to be cooperative interaction between medical care, nursing care, and other systems. The system is to be efficient and appropriately meet the needs of the people.

Chapter 3 Harmony with the Environment

The conventional socioeconomy, based on mass production, mass consumption, and mass waste, will reach its limitations. In the 21st century, a cyclical socioeconomy will form, and responses to global environmental problems will progress, facilitating the establishment of a sustainable socioeconomic system.

Part 1 Formation of Cyclical Socioeconomy

All economic constituents of society will have clarified responsibilities related to sound circulation of goods and sustainable socioeconomic development. Control of waste and efficient recycling will be inherent in the socioeconomic system.

The basic stance of the government will be changed. Emphasis on appropriate waste disposal will be shifted to emphasis on control of waste and promotion of recycling. Each economic constituents of the society, including producers, consumers, and the government, will be fully understand their responsibilities of waste control and recycling, forming a basic system where incentives are functioning to promote efficient fulfillment of those responsibilities.

In addition, an industrial structure and technological base responding to recycling will be established, with a big fall of recycling costs and realizing stable supply of high-quality and friendly to environment recycled materials.

Part 2 Addressing the Global Environment Problem

The global environmental problem, such as the global warming issue as a typical example, will be tackled both by a domestic challenge which targets creation of a society with minimal environmental impact and by an international challenge so that to be appropriate for Japan's position in the global society.

Domestically, Japan will address the global warming problem by changing the trend of greenhouse gas emissions to be declining and promoting further reductions of emissions continuously in the long term. The broad socioeconomic systems, such as urban and regional structures, transportation systems, energy supply structures, production systems and lifestyle patterns, will be transformed. In the process, new investments, technological innovations, and businesses will evolve.

Chapter 4 Japan's Position in the World

Part 1 Japan as Major World Player

Since Japan will not become a military power, it must continue to serve as a major player on the world stage in the economic sense, in order to secure a safe position internationally.

Socioeconomy suited to the 21st century, as discussed in Chapters 1-3 of Section 2, will be created within Japan ahead of other countries. The issues of addressing the diverse knowledge society, preparing for the low-birthrate and aging society and declining population, and ensuring harmony with the environment, will become issues that many countries worldwide will need to tackle in the 21st century. To this end, Japan's socioeconomy will serve as a model for the world.

Japan will display leadership in formulation of international rules. Since Japan can develop to provide safety, security, and prosperity only in an open global economy, it largely depends on the international rules. At the same time, ongoing globalization will make it more difficult for single nations to adjust to economic fluctuations. Closer cooperation among nations at the macroeconomic level, as well as the establishment and reinforcement of an international financial risk management system, centering on the IMF, will be necessary for constructive risk management.

Part 2 Futuristic Culture of Japanese-Born

In order to increase its attractiveness as a country and become a "respected nation" as a result, Japan will show its advancement in the making of rules, and become a global core to create and communicate information and knowledge. Not only in the field of natural science but also in social science, human science, and fields in which such sciences are integrated, domestically and internationally advanced information and knowledge are shared, dramatically improving its ability to modify and communicate. Top flight people will gather in pursuit of such information internally and externally.

To date, world culture born in Japan has been largely represented by video game software and animations. In the future, a lot of futuristic culture of Japanese born, such as advanced technologies including robots and computer intelligence, as well as information-based knowledge, will be communicated globally. Those are accepted with broad affinity.

As discussed in Section 2, in the context of Japan evolves into an "ideal" socioeconomy, futuristic cultures will emanate from Japan. As a result, Japanese people will be evaluated not for focusing exclusively on the economy but for being warm-hearted people.

Part 3 Role in Development of Asian Region

The size of Japan's economy in 2010 will be nearly the same size as the combined economies of the NIES, ASEAN, China, and India. Japan will nurture close and mutually interdependent trade and investment relationships with many Asian nations. Japan will open up new frontiers in advanced technological fields to foster sustained growth of the Asian region. It will also promote technology transfers into various countries in the form of technical assistance and direct investments. Japan will take the initiative by opening up both its product and investment markets, thus playing a role in the development of the Asian region.

Japan will also play a leadership role in economic integration within the Asian region. As differentials between the economic systems of each nation contract, new economic community, such as EU and NAFTA, that transcends conventional national borders is formed while globalization is going on. By displaying leadership in the WTO and other stages, Japan will contribute to maintaining and strengthening the global trade and investment liberalization. Given that formation of regional economic community will serve to compensate for multinational trading systems, Japan will utilize APEC(Asia Pacific Economic Cooperation) to play an active role in promoting economic interaction in the Asian region.

Chapter 5 Role of Government and New Concept of "Public Norm"

Part 1 New Role for Government

As various functions shift from the government to the private sector, the involvement of government in corporate activity and industry will be minimized. In this context, the role of government in economic policy will focus on preparation of market rules, crisis management, providing a safety net, addressing external economic issues, and responding to economic fluctuations.

Concerning classification of the roles of the central and local government, the central government will transfer its authority to the local government as much as possible, promoting decentralization. Accordingly, provision of public services linked directly with the citizen's lives will be more suited to their needs in the regions. And free, vibrant, and diversified regional societies will emerge as a result.

Part 2 New Concept of "Public Service"

The value perceptions of individuals demand freedom and diversity. At the same time, individuals' awareness of their own responsibilities will grow. Once this change in consciousness progress, the notion of leaving "public norm" matters to the "government" will fade, and a new concept of "public norm," where individuals strive to contribute to society, will be established.

The new concept of "public norm" will be reinforced as people's sense of belonging will diversify, creating a greater number of channels linking individuals with society. NPOs, which serve as human networks created via proactive participation by individuals, may become powerful communities that will nurture the concept of "public norm" by fostering individuals' expression of "individuality."

Section 3 Government Policies for Economic Rebirth

In order to rebirth Japan's socioeconomy targeting the "ideal socioeconomy" outlined in Section 2, we outline important government policies that should be implemented in the future.

Chapter 1 Forming Society of Diverse Knowledge

Part 1 Establishment of Markets and Business Environments
  1. Establishment of transparent and fair markets and consumer sovereignty

    Japan's markets will be made more transparent and fair, and consumer sovereignty, where freedom of choice in consumer markets is properly reflected in production of goods and services-will be established. To this end, the following measures will be taken.

    1. The three elements demanded by government in general -"transparency", "accountability", and "adaptability to fluctuation in socioeconomic circumstances"-will become even more important in the context of regulatory reform. In responding to globalization, the Japanese socioeconomy will be supposed to play an important role in two areas: distribution and information communication. It will move quickly to consider comprehensive reform policies for the purpose of creating efficient and attractive business environments that will stand at the forefront of the world at the beginning of the 21st century. And it will implement policies based on clear schedules.
    2. In conducting policy evaluations related to regulations, the standpoint of regulatory reform will be clearly positioned. Method of "cost-benefit analysis" and "regulation impact analysis" in various fields will be established and commonly used in order to raise objectivity level of policy evalucations.
    3. Concerning the transition into post-facto checking style of administration, slimming down of systems related to governments' permission and approvals and other direct regulations will be promoted. At the same time, it will be transformed into a system that stresses making of clear rules and monitoring to ascertain whether or not such rules are observed. In addition, there will be a shift toward leaving approval of standards to self-confirmation, self preservation of peace, and third-party approval, based on the precondition that protection of citizens' lives, personal safety, and assets will not be compromised.
    4. In line with the transition into post facto checking style of administration, fair and clear rules will be established in order to promote economic activity based on mutual self responsibility of consumers and business operators. And in order to ensure the practical effectiveness of rules, the judicial system will assume increased importance. To this end, considerations of measures for increasing the number of people in the legal profession will be made, and consumer education aimed at promoting economic activity based on freedom and self responsibility will be carried out.
    5. Concerning regulations imposed by the private on the private, Office of Trade and investment Ombudsman(OTO) should be utilized as much as possible to address people's complaints and demands. As the same time, there will be strict implementations of the Fair Trade Law, and systems to provide civil protection, including injunction and lawsuit systems, will be set up.
  2. Establishment of an Attractive Business Environment

    It is necessary to create attractive Japanese market from the international perspective and to create domestic environment that will allow easy business start-up and "second chance" to challenge for those who failed once. To this end, the following measures will be enacted.

    (Establishment of an Attractive Business Environment from an International Perspective)

    To encourage domestic companies to reorganize their business and foreign companies to enter Japanese market, the following measures will be taken.

    1. Corporate dividing system, bankruptcy, and other systems will be established and upgraded to promote smooth business restructuring by domestic and foreign companies in response to diversification of the corporate organization. An appropriate taxation system will also be examined.
    2. In response to expansion of business area by domestic and foreign companies, cooperation with authorities that engage in competition policy in each nation will be encouraged.
    3. Revitalize the real estate market, including real estate securitization.
    4. Protection of intellectual property rights will be reinforced, creating a system that can be easily utilized by intellectual property owners and users.

    (Promote Business Startups)

    1. There will be an environment that rewards risk with appropriate returns. The over-the-counter market will also be reformed to facilitate procurement of funds via direct financing.
    2. To create a strong preparatory reserve for future business startups, interaction of human resource between industry and academia will be encouraged. Through internships and other means, education aimed at fostering the entrepreneurial spirit will be implemented.
  3. Establish Environment that Allows Freedom of Choice and Challenges by Individuals

    The following measures will be taken to establish an environment that allows people to take up the challenge and display their individuality, regardless of gender. This will apply not only to business startups, but also to the personal career choices.

    1. Various systems will be revamped to restore neutrality. These include systems that provide special benefit for long-term continuous employment and systems that suppress people's desires to change jobs. In addition, measures will be taken to establish external labor market that meets the needs of labor shifts. These will include regulation reform of systems covering temporarily worker supplying services and job search services, as well as portability of pensions (introduction of defined-contribution pension plans).
    2. Accurate and effective arbitrary work systems based on the Labor Standards Law will be utilized, to enable independent individuals to be proactively involved in their job, experiencing self-fulfillment through it and demonstrating their creative abilities.
    3. In order to support wide-ranging developing human resources by individuals, there will be an expansion of the scope of study and training benefit systems and establishment of scholarship systems that also target people in the workforce. Support to cover of expenses related to skills development will be thus assured. At the same time, support to corporations that provide the time period necessary for faculty development. This will be facilitated through the efforts of companies to introduce diverse vacation systems and more flexible working hours.
    4. To enable individuals to be fairly evaluated and compensated for their volition and abilities, efforts to promote public relation and education related to the Law of Gender-Equal Society, as well as to form gender-equal society, will be encouraged. Particular efforts will also be made to prohibit gender discrimination in the employment market.
Part 2 Develop Diverse Human Resources and Promote Scientific Technologies
  1. Upgrade Education

    Conventional notions favoring parallelism will change drastically. To address the needs of the diverse-knowledge society, which prioritizes creativity, the emphasis of education will shift from overestimation of intellectual education to nurturing of creativity and exuberant sensitivity.

    To this end, distinctive forms of education will be encouraged. The following measures will be instituted in the education system, from elementary school to senior high school.

    1. Comprehensive measures will be studied and promoted to expand school-choice opportunities. This will include establishment of diverse schools and promotion of more flexible implementation of school zone system.
    2. Utilization of people in the workforce into the school education will be encouraged.
    3. Information disclosure about schools will be promoted.
    4. Opportunities for experiences with nature will be promoted via interaction with regional societies.

    Education will also be replented to cultivate human resources who can meet the needs of globalization and the networked society. This will include practical foreign-language training from the elementary level, with particular attention to English, which is becoming an international language, as well as usage of the Internet and other information-based education. For this purpose, it is necessary to raise the foreign-language and computer skills of teachers.

  2. Secure Diversity and Vitality by Accepting Foreign Workers

    In this time of ongoing globalization, we are approaching the era of diverse knowledge. For Japan to remain prosperous in the future, it must actively utilize multifaceted and diversified talents and expand economic activity based on the concept of creativity. From this perspective, mutual cooperation between foreign people and companies-who have different overseas cultural backgrounds-and Japanese people and companies is desirable, as is the creation of an environment where such people and companies can take active parts in a competitive atmosphere. Based on the fundamental policies listed below, specific policies for actively encouraging acceptance of foreign workers in specialist and technical fields will be considered and promoted.

    Regarding the issue of unskilled labor forces, this must be approached carefully, with due consideration to the effects on Japan's socioeconomy and the lives of its people. It is also supposed to give huge impact on the countries from which those workers launched and on the workers themselves. Public consensus must also be reached to consider the effects and discrete measures are indispensable.

    (1)Actively Accept Foreign Workers in Specialist and Technical Fields

    Rejuvenation of Japan's socioeconomy will be supposed to benefit from the acceptance of workers in specialist and technical fields, and in fields that necessitate background in foreign cultures or sensibilities. By building an open socioeconomy allowing foreigners from different cultures to gain employment, live, and demonstrate their skills in Japan, the diversity of Japan's socioeconomy will also benefit.

    Based on this perspective, measures will be promoted to more actively encourage the acceptance of workers in specialist and technical fields. Structural reforms will be promoted to ensure that attractive working and living environments will be created for Japanese and foreign workers. In addition, support measures will be enacted to upgrade international student accommodation in order to increase the accepted number of international students and support their employment after graduation.

    (2)Respond to Socioeconomic Changes

    In order to address changes in Japan's socioeconomy, it will be necessary in the future to review the range for foreign workers who are accepted based on resident's status and its screening rules. Japan, as the country accepting outside workers, should be wary of heavy potential pressure to accept workers from neighbor countries, many of which have large populations and developing economies. To this end, the potential impact on Japanese industry and citizens' lives and other circumstances should be considered while examining the most appropriate ways of accepting foreign workers, to allow accurate and flexible adjustments to the number of workers reflecting Japan's labor market conditions, including deterioration of the employment situation.

  3. Promote Scientific Technologies

    With respect to scientific technologies, R&D aimed at meeting social and economic needs will be promoted. R&D will be responding to major advancements in new business creation and information transmission, solving the global-wide problems of the global environment, food, energy, and natural resources, and addressing the issue of the aging society and creation of socioeconomy that has less impact on environment. It is important to ensure that the fruits of R&D are fully diffused and utilized, and to invest on R&D with strong focused area. Basic research will also be actively promoted, in order to contribute to the intellectual assets of world people and serve as a foundation for future scientific and technological development. In addition to natural science, strong emphasis will also be placed on social and human science to help address issues faced by modern society-economic globalization and social structural reform-and also benefit long-term socioeconomic and cultural development.

    In order to increase the quality of the results through creative R&D, human resources will be procured and nurtured, and researchers will work in flexible, competitive, and open R&D environments. Moreover, there will be stronger interaction between industry, academia, and government, as well as among regions, nations, and R&D fields. R&D initiatives will be meticulously evaluated. As a result, new R&D systems will evolve. In addition, an intellectual foundation will be prepared, including R&D and other facilities, information communication bases, measuring standards, and information on living resources. At the same time, efforts will be made to foster understanding of scientific technologies among the citizens.

    By contrast, the importance of "goods manufacturing," which has played a major role in Japan's economy, should also be recognized. To ensure succession and development of technologies and know-how accumulated to date, Fundamental Plans for Promoting Core Manufacturing Technologies will be formulated, and measures related to core manufacturing technologies will be promoted comprehensively and strategically. In addition, Engineer Systems of Japan will respond flexibly to technological changes, and they will be improved to become internationally integrated and broadly accessible to engineers. In the process, mutual transfers of Japanese and foreign engineerswill be encouraged, and engineers themselves will be rejuvenated.

Part 3 Regional Economies and Social Infrastructure in the Diverse-Knowledge Society
  1. The "Compact Megalopolis" Concept (Designing Cities with Comfortable "Space" and Comfortable "Time")

    In large cities, advanced and diversified urban functions will be accumulated compactly, promoting networked "Compact Megalopolis" Concept. In other words, living spaces will be upgraded and expanded, while levels of safety, comfortability, and convenience will also be improved, assuring comfortable "space". At the same time, comfortable "time" will also be maintained with the proximity and compoundness of comfortable "space", network facilitated by advanced traffic and information communication infrastructures, as well as reduced commuting times. Meanwhile, expanding network will also stimulate the compensation of function in wide area, inter-regional interaction, and diverse and swift exchange of people, goods and information.

    To this end, rearrangement of existing urban areas will be promoted through area improvement project. Through the strategic and effective usage of land and combined usage of land, various living space will be improved and expanded, with increasing proximity and compoundness. Meanwhile, regarding usage regulations for urban planning and other land use planning, compounding usage in more wide-ranging will be considered, based on regional characteristics.

  2. Region Designing with Distinguished Industries and Cultures

    In order to support independent development of local cities, inter-regional cooperation will be promoted, and designing regions with distinguished industries and cultures will be fostered. To this end, the following measures will be adopted.

    1. Through the rejuvenation of central urban areas, region cohesive industries, such as retail trade, that has regional conclusiveness and contributes to the establishment of stable regional economic foundation will be promoted.
    2. Actions will be taken to effectively utilize regional resources, establish intellectual infrastructures, and raise the information communication capacity of regional areas. This will lead to produce region-specific industries and strengthen their competitiveness.
    3. Life infrastructure will also be established by securing the basic functions that improves urban everyday lifestyles. For more advanced functions, priority facilities that highlight the specific characteristics of regions will be put in place, with due consideration for urban scale. At the same time, inter-regional cooperation will be fostered, utilizing traffic and information communication network functions.
  3. Rejuvenating Hilly and Mountainous Areas

    From the perspective of rejuvenating hilly and mountainous areas, it will be important to appropriately and effectively fulfill the function of supplying food stably and the multi- functional roles, including the functions to protect national land and environmental protection. Through interaction with urban areas, as well as wider cooperation with surrounding authorities and role sharing, it will be necessary to assure ample convenience, including efficiently setting up production and living foundations. The following measures will be taken to realize it. Other than hilly and mountainous areas, necessary measures are taken to warrant appropriately and efficiently in order to develop agriculture, forestry, and fisheries industries as core regional industries and to improve the living environment form the perspective of protecting the people's lives and property and assuring improvement of living environments.

    1. In order for regional leaders, whose desires extend beyond their region and industry, to effectively demonstrate their knowledge and skills, environments related to living, education and work will be established, so that those regional leaders will be secured.
    2. Provide opportunities for regional employment and income gaining. Measures include development of vibrant agriculture, forestry and fisheries industries, and development of comprehensive tourism industry that promote regional tourism resources together with original local industries and wider cooperation with surrounding authorities, particularly with urban areas. It also includes promotion of environmental industry and knowledge-intensive industries.
    3. Establishment of fundamental life related infrastructure, such as transportation and information communication systems, medical and welfare facilities, and commercial facilities, wider cooperation with surrounding authorities and networking.
    4. Functions will be strengthened through rural communities realignment. National consciousness of multi-functional roles will be fostered. Systems, such as agriculture, forestry, and fisheries industries, are created to fulfill those functions efficiently. Interaction and coexistence with cities will also be encouraged.
  4. Establishment of Social Infrastructure that Supports Diverse-Knowledge Society

    In order for Japan to become an "advanced country with diverse- knowledge" in the 21st century, it will implement the following measures.

    1. Install fiber-optic transmission cables and sophisticate various info-communications equipment in connection with relay point based on market economy principles. Efforts will be made to create a world-level high-speed, high-capacity info-communication network within the core of the Japanese archipelago.

      To this end, public open spaces will be used to full effect. Fiber-optic cable installed by private sectors will be integrated with social infrastructure-including roads, rivers, and sewage systems-creating a nationwide information superhighway. In addition, active support will be provided to develop technologies, including next-generation Internet and satellite broadcasting that allows high-speed transmission in large volumes of information.

    2. Create an electronic government as part of information-oriented public sectors. One-stop services will provide citizens and corporations with various public services via personal computers at home or public terminal equipment at local public service facilities (such as post offices and agricultural cooperative offices). In addition, transportation infrastructure will be integrated with info-communication-related technologies, to efficiently and cohesively design, build, and operate itself as SMART Infrastructure including "smartways(intellectual road)".
    3. To intensify global competitiveness, highly competitive hubs with global scale and functions, such as international airports and harbors, will be established. Develop high-speed transportation networks to make the international hubs more accessible, and promote 24-hour operation comprehensively at the hubs. In addition, establish life-supporting infrastructure, such as internationally-no-inferior roads, parks, sewage systems, rivers, housing, and cultural facilities, info-communications facilities. Improve educational facilities for foreign children.
Part 4 Consideration for Relocation of Capital Function

Relocation of capital functions will be an important fundamental method to correct the over-concentration in Tokyo. It is necessary to consider this issue in tandem with overall national government reform, covering decentralization to local authorities, deregulation, and fiscal reform. In addition, at times of casualty, it could avoid the simultaneous damage of capital functions that will act as command center to ensure recovery and economic center. It will contribute to reinforcement of recovery from disaster. Moreover, a city that is constructed in a new relocated place will serve as a leadership model for urban formats. It will also be very significant in the context of bringing about a complete change of heart among people and creating new Japanese cultures.

Under the system in which Tokyo stands at the apex of land architecture, customs of face-to-face communications were well-established. However, in the days that information communication network will develop, this custom needs to be reexamined.

Relocation of capital functions will have major benefits for transformation of new land architecture. To this end, active consideration aimed at concrete action will be promoted, based on "Law Concerning Relocation of Cabinet and Other Functions."

Relocation of capital function is closely related to the awareness of the people and their concepts of values. It will also give large impact on the way of policy, economic and culture in the 21st century in Japan. Therefore, it is necessary to construct concensus of the people in the fair and open procedutures.

Chapter 2 Preparing for the Low-Birthrate, Aging, and Declining-Population Society

Part 1 Reliable and Efficient Social Security System

  1. Public Pensions

    It is required to build a stable and reliable pension system in the long run for the important role of the public pension system in the future. As such, the entire system will be reexamined to ensure equality of benefits and payments and to avoid excessive burdens for future generations. Such a system will contribute to the creation of a longevity and vibrant society encompassing the 21st century.

    From the perspective that public pension system is made to be managed stably over the long term, it is necessary that assured pension benefit must be paid. It is also needed that future pension payment is limited to affordable level and that the growth of the premium payment is adjusted within the level of premium payment. To permit this, employees pension system benefit standards and age for commencement of payouts will be swiftly revised.

    Issues related to the pension system, which is currently indicated from several standpoints will warrant broad and ongoing debate into the future.

  2. Medical Treatment and Nursing Care for the Elderly

    The medical treatment for the elderly in the future has to improve the quality of the lives of the aged. To this end, it will be necessary to cooperate and share the role appropriately with the nursing care, and to ensure a supply of efficient services that better meet the needs of the elderly.

    In order to provide diversified and efficient medical treatment and nursing care services, the public sector will take responsibility for stable management of the social insurance system. And to protect users of nursing care services, for which a new system will be introduced, sufficient attention will be paid to securing quality, continuity, and stability of services, as befits the characteristics of each type of service. A diversity of new service providers, including those from the private sector, will become involved. Information about medical treatment and nursing care will be upgraded to ensure that users have suitable choices.

Part 2 Age-Neutral Socioeconomy

Within the next 10 years, the lower-limit-age from which payout of the employees pension system begins will be raised. If it is ultimately raised up to 65, it will be crucial to create employment opportunities for those in their early sixties. For this reason, a continuous employment system, which assures work for all people up to age 65 who wish to work, will be widely implemented and promoted.

In addition, the ongoing low-birthrate, aging trend will lead to a decline in the working population. If the workers get aging, then the conventional employment system of seniority-based-wages and seniority-based-promotion will be difficult to be maintained. It will be necessary to transform the system into one that addresses the desires and capabilities of the elderly. Since those conventional systems may become factors for constraining employment of the elderly, a review of employment systems in corporations that maintain such systems will be needed.

Under the age-limit system, those who reach retirement age have their employment contracts terminated regardless of desire or ability. On the other hand, it generally guarantees employment until that age. As a result, it has a close relationship with seniority-based-wages and seniority-based-promotion. Considering the wage and promotion system based on the workers ability and contribution degree, it will be necessary to review the concept of prohibiting age discrimination comparing with the age-limit system from the perspective of facilitating employment of the elderly. Based on this review, promote the employment policy for the elder.

Part 3 Recurrent-Style Life Course

To meet the growing need for a recurrent-style life course, schools, government institutions, corporations, NPOs, and a wide range of other entities must take the initiative to provide a diversity of services-including education, sports, and culture-regardless of the existing frameworks and fixed notions, thus allowing people to choose various life courses throughout their lives.

To this end, people in the workforce will be actively encouraged to enter universities and other upper-level educational institutions, An environment that allows people to engage in education, sports, and cultural activities in their own region according to diverse needs, will be promoted.

Part 4 City Designing in the Low-Birthrate and Aging Society

  1. City Designing for Easy Walking

    In the low-birthrate and aging society, it is required that everyday' moving is safely and quickly made.

    To this end, maintaining comfortable "space" and suburban environments, as well as promoting compact concentration of various urban functions and building advanced transportation and info-communication networks, it is necessary to improve safety, comfortability, convenience, and efficiency, as well as shorten moving times.

    In order to enable choice of houses from a wide variety of high-quality selections, promote providing stock of high-quality housing that meet the needs for residence, such as, high-quality houses for family and barrier-free houses for the elderly.

    Secure enjoyable pedestrian space and public space by constructing barrier-free pedestrian space and public space and underground electric lines as well as promoting safety transportation measures.

  2. Social Infrastructure for Low-Birthrate and Aging Society

    The following measures will be undertaken to establish social infrastructure, so the elder lead safe and comfortable lives.

    1. Regarding public facilities and information service equipment, universal designs that are easy to use for everybody will be promoted, negating the need for improvements and special designs as far as possible.
    2. Expand pedestrian area and provide barrier-free public facilities by avoiding multi-level construction and installing elevator and escalator at the public transportation terminal.
    3. Disaster prevention facilities and parks will be created to protect the lives of the weak, such as the elderly, from disasters and accidents.

    In order to create a low-birthrate and aging society with prosperity and vitality, it will be important to raise the efficiency (productivity) of the socioeconomy as a whole. To reduce travel time and enhance distribution efficiency, comprehensive measures will be taken to ensure smooth traffic flows. Measures include traffic demand management and multimodal facilities specifically, expansion of traffic volume by constructing urban railways and roads, promotion of staggered commuting hours and car pooling, and, notably transit malls.

Part 5 Addressing the Low-Birthrate

Although marriage and childbirth are matters of personal choice, it will be necessary to establish an environment that gives individuals a broader selection of options. It will include redressing fixed notions about gender roles and employment practices and establishing systems in the workplace and regional areas that support those who work while raising children.

From this perspective, the following measures will be taken. Following more in-depth studies, basic policies that address the low-birthrate issue is needed to formulate.

  1. Fixed notions about gender roles and corporate culture that place top priority on the job will be redressed.
  2. An environment allowing people to continue working while raising children will be set up. This will entail promoting a diversity of working practices that facilitate both work and child-raising, including utilization of child-raising vacation systems and working from the home. An open labor market that allows people to return to work after taking child-raising leave without being penalized will be created. Independent, creative, and efficient work practices will be set up through the widespread adoption of flex-time systems, as well as attainment and reinforcement of an 1,800-hour work year, achieved through reduction of overtime.
  3. A diversity of child-care services, including extended day-care and infant day-care systems, will be available. Deregulate covering approval of child care facilities.
  4. Create environment for comfortable household for child-birth and healthy child caring. Provide housing and living environment. Promote education with room to grow. Promote after-school and home education promoted.

Chapter 3 Harmony with the Environment

From the perspective of creating an environmentally friendly socioeconomy, it is necessary to construct cyclical socioeconomy that focuses particular attention on waste problem and recycling. It will also require appropriate measures for global environmental issue and social infrastructure that supports safe and sustainable society.

Part 1 Creating a Cyclical Socioeconomy

  1. Formulate Behavioral Norm for Recycling

    The following measures will be taken to foster common behavioral norm that promotes waste control and encourages recycling (including reuse. The same below.).

    1. Even after maximum effort is made to control waste, some will inevitably be discharged. In such cases, certain fundamental principles should be reinforced. Such principles means that recyclable items should be recycled as much as possible while cpmsodering the another environmental impact of recycling itself. Decisions on specific recycling systems will be based on special characteristics of specific items and industry sectors, as well as the nature of business relationships.
    2. Roles of relevant parties-such as waste producer, manufacturers, waste disposal service providers, recycle service providers, and government-will be appropriately, efficiently, and clearly defined. Broad debate shall focus on the most appropriate responsibilities of each party in the future.
    3. In reviewing the systems for waste disposal and recycling, adoptions of various economic method should be examined. Measures include full-scale introduction of per-unit fee system for municipal waste for the purpose of appropriately reflecting the environmental cost for the price.
    4. An environmental labeling system shall be set up. It will enable consumers to appropriately evaluate goods, services and corporations as providers of goods and service based on environmental considerations. A market-driven recycling evaluation system will be set up, including public disclosure of recycling-related information such as environmental corporate accounting and publication of environmental reports.
    5. Governments shall continue to adopt "green" procurement practices, while expanding use of recycled materials in public works projects and assuring interim demand of recycled materials.
    6. Under mutual understanding and cooperation in the global community, integrate systems for waste disposal and recycling of each nation and actively participate in developing global standards regarding recycled materials.
  2. Industrial Structure and Technological Foundation

    The following measures will be taken to help dramatically reduce recycling costs and create a combined "venous-arterial" industrial structure and technological foundation that will permit stable supply of high-quality recycled materials that have minimal environmental impact.

    1. Life cycle assessment methods will be established to evaluate and grasp environmental impact throughout the life cycles of products. This will facilitate the most appropriate product design and development, taking entire product life cycles into consideration. At the same time, production processes as the "arterial" sector will reassess their production methods in order to drastically reduce waste. In the "venous" sector, meanwhile, concentrated investments will be made to nurture and strengthen waste processing and recycling methods.
    2. Support measures will be put in place for concentration of industry and establishment of foundations for it aiming to reduce waste to zero. It will help promoting the recycling of wastes that will be produced despite of the efforts made by one corporation and one industry.
    3. Examine strengthening interaction among waste processors and recycle service providers and reassessing waste categorization. Based on this consideration, improve the efficiency of waste processing and recycling industry through promotion of wide-area and integrated business development. It will include combined disposal method under unified facility approval procedures.
    4. Support corporations that develop and introduce innovative waste processing and recycling technologies. Construct a framework in which information of technologies is shared among both "arterial" and "venous" sectors of the industry.

    In order to create a cyclical-style socioeconomy, examine various measures and specify and promote policy programs.

Part 2 Addressing Global Warming and Other Global Environmental Problems

  1. Set Up International Framework and Provide Technical Support for Developing Countries

    Actively participate in international negotiations related to global environmental protection and work to create international frameworks. With particular emphasis on the global warming issue, actively participate in creation of international mechanisms, aiming to establish preconditions to take effect the Kyoto Protocol early.

    For developing countries, actively provide official development assistance in the environmental field. Specifically, focus on the following issue.

    1. Transfer environmental technologies and develop human resources responding to particular country circumstances
    2. Capacity building of developing countries by sharing Japan's experiences of pollution.
    3. Promote environmental education
    4. Establish a domestic foundation, through cultivation of environmental experts in order to address above initiatives

    When providing official development assistance and conducting other business overseas, promote appropriate and efficient environmental responses. Also promote studies, research, and observation related to the global environment, R&D and pervasion on technology which would contribute to protect global environment such as innovative environmental and other energy technologies.

  2. Domestic Initiatives

    Among global environmental problems, the global warming issue is receiving particular attention. It is necessary to actively promote initiatives aimed at reducing greenhouse gas emissions, based on the agreement of COP 3(the Third Session of the Conference of the Parties to the U.N. Framework Convention on Climate Change)on the prevention of global warming. To this end, the following measures will be implemented.

    1. Strongly encourage extensive energy-saving measures in the fields of industry, transport, and public welfare through many initiatives. Those initiatives include as follow improve energy consumption efficiency of energy utilizing facilities such as automobiles, electrical appliances, and OA equipment improve adiathermancy of houses and other buildings comprehensively rationalize energy use in factories and other business operations and develop and adopt of energy-saving technologies.
    2. Improve traffic systems by promoting use of public transport facilities, including trains, buses, and trams alleviate traffic congestion by building bypasses and loop roads promote railway and domestic coastwise cargo transport (including construction of modal shift boats) and facilitate use of bicycles through provision of bicycle parking facilities.
    3. To foster energy-efficient living patterns and social awareness, it is important to provide consumers with various informations related to energy and environmental protection. To this end, national and regional government bodies, as well as corporations, will actively supply information to citizens, and emphasize education aimed at fostering living patterns that incorporate saving of energy and resources.
    4. Regarding energy supply, development and adoption of new energy forms, such as solar and wind power, will be actively adopted. At the same time, development and utilization of nuclear power will be promoted, while assuring its safety and gaining the understanding of citizens.

    Gaining the broad benefits of emission suppression will require not only regulatory measures but also introduction of other financial measures for initiatives to induce R&D, discharge control and counter measure considering that those measures, such as introduction of clean-energy, low-pollution, low-consumption automobiles, and solar power generation, associate cost issues.

Part 3 Social Infrastructure that Supports Environmentally Friendly, Safe, and Sustainable Society

The following measures will be adopted to facilitate building of an environmentally friendly, safe and sustainable society.

  1. A supply-demand information database, covering reusable materials, will be provided. Waste processing, recycling-related facilities will be efficiently promoted through PFI methods.
  2. Amenities will be actively procured, and healthy water management facilities put in place,. Preservation of living standards by prevention of traffic noise, creation of beautiful scenery harmonizing with regional history, culture, character and natural environment. Thus create nature-rich social infrastructure.
  3. Safe national land will be efficiently constructed, through establishment of national land protection facilities, as well as formulation of disaster prevention measures, including improvement of disaster-related information.

Chapter 4 Challenge to World Order

Part 1 Making Rules for the World Economy

In order to contribute to ongoing globalization and receive maximum benefits from it, Jaoan will actively work to set up rules and standards for the global economy.

  1. Influence WTO Negotiations

    In the context of ongoing globalization of corporate activity, contributing to the creation of framework for a global economic transaction assumes more importance. In addition to conventional trade-related issues, there is growing interest for various systems related to corporate activities in each country, such as investment, competition and intellectual property rights. Due to development of info-communication technologies, electronic commerce becomes the new international transaction method. In this context, there is growing need to design systems to cope with these realities.

    At the next round of WTO, comprehensive negotiation will include the items listed below. By recognizing these items as medium-term issues, thus helping build global economic transaction framework that reflects the needs of the new era. While liberalization of trade and investment will be a major contributing factor in economic growth, it will have a negative effect on the environment if it is done without principled. For this reason, it is required that trade and investment polices and environmental policies to be mutually supportive.

    1. Comprehensive multilateral rules should be laid out including appropriate protection and liberalization of investment and mechanisms for dispute procedure under the precondition that appropriate consideration will be made responding to the economic situation of the developing countries.
    2. Global framework related to competition should be formed. Assure WTO's basic principle of transparency and non-discrimination in the competition field. Provide competition-related legal frameworks in developing countries. In-depth discussion about global cooperation in competing areas.
    3. Regarding products that are available via the Internet and other electronic means, further discussion related to existing rules is necessary. Discussion should cover application of WTO rules that are applied for physical transaction of products such as equal national treatment, most-favored nation treatment and prohibition of volume limitations. Protect privacy of such transactions and intellectual property rights should also be covered.
    4. In relation to intellectual property rights, following items are important. Reinforcement of clampdown against copyright infringements in developing nations and promotion of technology transfer to developing nations based on due consideration of mutual benefits for copyright holders and users Shift to U.S.-style first-invention principle and swift introduction of early disclosure systems and Establishment of global system for acquiring rights (world patent system).
  2. Make Rules for International Financial Markets

    As can be seen from the recent Asian currency crisis, recent instability of the international currency system has prompted people to question a number of factors:
    Maintenance of order in the current international currency system
    Risk management capabilities of institutional investors in advanced nations and
    Liberalization processes in developing countries and the economies in transition. Japan must work with relevant nations to help build a stable international currency system for the 21st century. To this end, the following measures will be implemented.

    1. Help create a framework that will make the functions of crisis management organizations, centering on the IMF, more effective, with the aim of establishing a stable international financial system that can prevent and solve international currency crises. Specifically, promote diversification of fund-raising of the IMF as "last-resort lender" and establish flexible financing systems to allow swift supply of funds in emergencies. In order to raise the effectiveness of economic adjustment programs for which the IMF states financing conditions to countries in crisis, it is necessary to assure propriety and transparency of the program and to develop procedures that could cope with the crisis appropriately.
    2. In regard to flows of short-term capital that will lead to instability of the international currency and financing system, it is needed to strengthen monitoring functions to ensure that such flows are accurately comprehended. It is also necessary to strengthen the prudence policy aimed at assuring the sound management of financial institutions, which receives capital.
    3. For developing countries and the economic in transition, support sequential liberalization and establishment of sound financial systems and risk management systems of financial institutions as preconditions for liberalization.

Part 2 Japan's Role in Asian Region

Asian economies will soon emerge from their current economic crises and again assume a position as a growth center early in the 21st century. The position of Japan in Asia will be important. Japan will play the following roles in the Asian region, taking into account its close economic relationship with other Asian nations.

  1. Japan will play a leadership role in fostering internal relationships within the Asian region. Besides emergency measures for affected countries by the financial crisis, Japan will maintain and boost trade and investment liberalization through continuously supporting Asian countries to return to sustainable growth route and further development. In order to accelerate economic development led by private-sector investment, Japan will support creation of competition policies and frameworks. Those Japan's policy responses in Asia imply that a market would be formed, where free trade and liberalized business activities among the countries promote further development in the long run. To this end, as a first step Japan will undertake to strengthen bilateral economic relationship through institutional harmonization and mutual cooperation with Republic of Korea, the neighboring country relatively homogeneous.
  2. In addition to implementing strategies based on "A New Initiative to Overcome the Asian Currency Crisis", Japan will cooperate with the Asian Development Bank and other international financial institutions, as well as various Asian nations, to create frameworks that will help prevent crises in the future. Regarding specific frameworks, it will complement the global crisis management functions of the IMF and strengthen the Manila Framework by upgrading intra-regional surveillance and establishing a flexible and adaptable support system, thus strengthening regional liquidity, as a measure for addressing the crisis. To this end, Japan will actively propose establishment of an Asian monetary fund with clarification of the role of the IMF. Through these efforts, it will strengthen crisis management mechanisms in the Asian region, to make them more effective.
  3. In Asian countries, interests are focused on the issue to raise the weight of the yen as a central element of the Asian nations' currency basket, in order to increase stability of its own currency and ultimately its economy. The issue to utilize yen as settlement currency for trade and capital transactions has also attracted interests. Within this context, Japan will adopt various measures to raise the convenience of the yen aiming to develop "internationalization of Yen".

Part 3 Information Communication to the World

First, it is necessary to cultivate society that allows free activity of individuals and organizations that communicate individual pieces of information, in order to become a hub of intellectual activity in the world. To this end, a comprehensive set of policy programs will be formulated based on studies of the effectiveness and necessity of the following measures.

  1. Preserve, establish, and communicate cultural and academic information that is socially significant but not supplied via market functions.
  2. Establish infrastructure aimed at expanding info-communication networks and reducing usage costs.
  3. Upgrade education covering from use to development of info-communication technologies.
  4. Encourage to increase opportunity for study at higher educational institutions in foreign countries.
  5. Establish incentives to support nonprofit activities, including those of research institutions.

Second, Japan must expand the its volume and transmission capacity of information it transmits to other countries. The diffusion and evolution of the Internet and portable computers will provide a major boost to information transmission. Japan will provide and upgrade information infrastructures, centering on the Internet, and reinforce information-related and foreign-language education. In order to promote understanding of Japan among overseas countries, it will encourage use of the Japanese language in international society.

Part 4 International Economic Cooperation

International political and economic circumstances have changed and progress in globalization has given major impact on world economy. Based on this premise, in the approach to the 21st century, Japan must pursue the following directions with respect to international economic cooperation, covering nations and assistance-providing institutions, as well as private-sector corporations, NGOs, regional governments, international development financial institutions, and other diverse entities.

  1. It will reinforce and upgrade intangible support such as human resource development, technological support and advice for system reform on finance in developing nations.
  2. Based on the growing importance of understanding and cooperation of the citizens, the most appropriate forms of international economic cooperation will be examined, including the perspective of achieving sustainable development, and clarify the anticipated benefits as far as possible. It will then conduct monitoring and post-evaluations of implementation status and proactively disclose such information to the public in an understandable way.
  3. In order to maximize utilization of limited natural resources, role classification and organic interaction by diverse bodies is desirable. When undertaking role classification and interaction related to international economic cooperation by public and private-sector entities, it is important to share the roles of market and government. The government's role will focus on areas where private-sector market mechanisms alone cannot appropriately handle resource allocation. As such, it will raise the efficiency of international economic cooperation as a whole. In addition, the Japan Bank for International Cooperation, scheduled for inauguration on October 1, 1999, will fully manifest its functions as both Official Development Assistance (ODA) and Other Official Flows (OOF) provider. It is important that it contribute with mobility and efficiency to the global socioeconomy. Moreover, the assistance activities by NGOs which are capable of providing assistance closely meeting to regional needs as well as provide specialist advice should be cooperated and supported further.
  4. Based on the above perspectives, deepen study of mid-long term trends surrounding developing nations. While paying attention to role classification and interaction by diverse entities in the context of global economic cooperation, the outlook for such cooperation in the 21st century should be identified.
  5. In order to improve transparency and efficiency, swiftly formulate medium-term ODA policies (working title) in cooperation with relevant government agencies.

Chapter 5 Role of Government

Part 1. Enhance Administrative Efficiency and Reconstruct Finances

  1. Simplify Organizations and Improve Project Efficiency

    Creating a government administration that suits the 21st century first requires improvement of administrative efficiency following a thorough reassessment of national government functions and scope of responsibility jurisdictions. The national government plans to strengthen the Cabinet functions and reorganize government organizations into one office and 12 agencies in 2001, thus reducing the size of government organization and raising efficiency. Subsequently, government organizations will continue to focus on accurately meeting administrative needs, while continuously promoting organizational simplification and preventing organizational entrenchment.

    To permit efficient and effective supply of public services, comprehensive evaluations of projects will be upgraded, including cost-benefit analyses. Time management concepts will also be introduced to raise the time efficiency of project conducted. Time losses incurred due to project delays will be calculated and share the information by public disclosure. Systems to promote coordination among government bodies and those who are concerned will be studied.

    To provide public services of better quality, PFI (new project method that utilizes private-sector funding and know-how to provide public facilities and improve services) will be actively promoted in relation to areas where introduction of private-sector activity is deemed to be effective and economical. Attention will be paid to the following points in relation to promotion of specific PFI.

    1. Related government agencies will submit their implementation outline models at an early stage and embark on leading projects. They will also undertake public relations of PFI.
    2. Fair and transparent procedures and active information disclosure will be emphasized to ensure that supervision by market principles and the citizens can function properly with regard to consecutive processes, such as formulation of PFI project plans, selection of private-sector supplier, and implementation of PFI work.
    3. In order to introduce PFI into more project fields, deregulation will be promoted, and necessary legal measures will be adopted.
    4. Examine specifically and concretely the appropriate roles and responsibilities sharing regarding to project types and laws and related regulations concerning construction and establishment and management of public facilities.
  2. Restructuring and Personnel Management for Improvement of Productivity

    To increase productivity of an organization, it is important to design a framework that sufficiently encourages members of the organization to make an effort. To this end, the policy planning and proposal function should be separated from the policy implementation function so that respective functions work properly to assure the most appropriate reorganization, with a view to making government planning proposals and providing efficient public services from broader and wider perspectives. In addition, the following reforms to the government official system will be aggressively promoted, based on "Policies to Promoted of Central Government Agency Reforms" (decision by the Front Office of Central Government Agency Reform Promotion on April 27, 1999).

    1. Rewards that reflect ability and performance are crucial. Therefore, the conventional seniority-based operation system will be replaced by flexible personnel management systems in which type of employment examination, seperation of administrative official and engineering official, and gender are irrelevant, including the possibility of reverse-senior-based system. Transition will also be made toward multistream personnel management.
    2. A personnel system that allows people to remain employed for the long term will be built, while diversification of retirement patterns will be created with smooth and swift job changes.
    3. In order to procure diversified, high-quality human resources, a framework that fosters expansion of mid-career employment from external sources will be promoted, as will personnel exchange.
  3. Assuring Fiscal Soundness

    Japanese finance is in the severe situation. At the end of fiscal 1999, Japan's outstanding balance of public bonds issued is estimated to reach 327 trillion Yen, and the ratio of national and regional government debt to GDP will become the worst among major advanced nations.

    If the current financial situation is left unattended, the continuation of the low-birthrate and aging trends will mean an excessive burden for future generations. Recently, there is a view that markets are becoming more sensitive to the government's financial situation. Given trends in private-sector demand for capital, an expansion of outstanding government bonds could cause upward pressure on long-term interest rates, creating obstacles to private-sector capital investment that could well have a negative effect on the economy.

    In addition, fiscal mechanisms may well become more rigid due to the huge public debt burden and flexible fiscal management to meet demand for diverse public services may well become difficult.

    It is extremely important to remove evils and to assure fiscal soundness from the perspective of maintaining economic growth in the medium and long terms. It becomes the common awareness of major advanced nations. Each country is now striving to improve the fiscal soundness.

    Even in cases when fiscal soundness and economic vitality with stability are not always compatible in the short term, it is necessary to make appropriate and timely judgments of economic circumstances in order to keep the desirable balance between the two issues.

  4. Fiscal Reconstruction Policies

    Due to the severity of current economic conditions, Fiscal Structural Reform Law has been frozen for the time being from the perspective to concentrate all resources on economic recovery. Once the economy is on a recovery path, however, steady fiscal reconstruction must be promoted through diverse means.

    In order to secure fiscal soundness in the mid-long terms, there must be a resolute reassessment of the entire public service system, with consideration to review roles sharing between public sector versus the private sector, and between national government versus regional governments. This should be done along with the stream of central government agency reorganizations and decentralization through administrative reforms. In terms of both expenditures and revenues, all means available should be exploited.

    In relation to expenditures, improvement of administrative rationalization and efficiency should be done actively. It is also necessary to reassess the fundamentals of each system and to decide priorities of policies.

    Consideration should be given to the most appropriate project of the governmental institutions and content of the project from the perspective of simplifying administration. Public services will be entrusted to external vendors through implementation of PFI method, outsourcing, and privatization, thus actively reducing the content of project while raising their efficiency.

    On the revenue side, deregulation measures must be implemented to revitalize the economy by fostering economic structural reform, creation of new industries and highly-motivated new business startups. It will contribute to fiscal restructure if those measures generate increased revenues.

    While paying due attention to structural socioeconomic changes-such as the low-birthrate and aging trends-as well as economic and fiscal circumstances, it is needed to examine the best possible taxation system that can finance necessary public services considering the fairness of taxation burdens, including the reassessment of taxable base.

    Ongoing reassessment of national assets will be made continuously in the future, focusing on selling-off, while promoting most effective utilization, including concentration and consolidation. For stocks held by the government, reassess the meaning of government holdings. Sell them off expect those which truly needs to be held by the government.

    Once Japan is on a recovery path after following these policies, a specific fiscal reconstruction policy program will be formulated.

  5. Assuring Transparency of Government

    In order to secure fiscal soundness, achieving transparency and reliability of government operation, and fulfilling the accountability to the people, it is necessary to enable the effective function of external monitoring toward the governmental activity. Specifically, set performance indices for public services, quantifying objectives to the fullest extent, then regularly disclosing performance information publicly.

    To facilitate public monitoring of government accounting, more fiscal-related information will be disclosed. Despite various technical problems, considering that introduction of corporate accounting elements are tried including preparation of balance sheets in some other countries, it would be necessary to examine how to disclose assets and liabilities in Japan, starting from activities that are relatively close to corporate activities.

Part 2 Self-Supporting of the Local Government

  1. Promotion of Decentralization and Improvement of Self-Determination Ability of the Local Government

    In order to promote self-supporting of the local government, decentralization will be continuously promoted, with authority transferred from the national government to local government.

    Concerning tax-based revenue sources for the local government, since there are discrepancies between the scale of expenditures and tax revenues, such gaps will be narrowed by upgrading local taxation systems while streamlining treasury grant subsidies and respecting local taxation autonomy. This will allow the relationship of benefits and burdens of the citizens to be clarified and self-determination ability self responsibility to be strengthened.

    From the perspective of minimizing the gap between expenditures and taxation revenues, local taxation will be upgraded while respecting local taxation autonomy. In line with progress in decentralization, while taking the roles of the national government and regional government into consideration, it is necessary to examine the most appropriate sharing of national and local tax revenue source, and construction of local taxation systems, which has less uneven distribution of tax resource and stable tax income.

    Rearrangement and rationalization of treasury grant subsidies will be promoted, and even those that are slated for continuation will be needed to reform operation and management. Public works projects that require subsidies individually will be limited. Meanwhile, integrated subsidy system will be created, with implementation left to the discretion of local government.

    The approval system for issue of local government bonds is planned to shift into a deliberation system. Accordingly, from the perspective of improving conditions for issuing local government bonds on the market, local government tax resource will be upgraded and secured as redemption revenues, information disclosure to the citizens will be improved, and joint issue of local government bonds will be promoted.

  2. Promoting Wider Cooperation of Surrounding Authorities

    The role of municipal governments, which is best able to grasp regional circumstances and the needs of citizens, becomes more important. Mergers of municipalities will be actively promoted and administrative systems of municipalities are set up through mechanisms to alleviate drastic changes in local distribution tax, together with fiscal mechanisms to support post-merger urban development. Wider area cooperation of surrounding authority will also be promoted via utilization of Wide-Area Alliances of Surrounding Authorities.

    In the mid- long terms, examine the proper functions and scale of prefectures to suit such functions considering strengthening the functions of municipalities and prefectures mergers.

    Moreover, the significance of the "Do-shu" system will be examined from broad perspectives.

    Thus, promote wider cooperation of surrounding authorities.

  3. Encouraging Citizen Participation

    Active participation of citizens and NPOs in activities of regional community as well as a creating framework for consensus must be encouraged. To this end, accountability will be strengthened via public relation activities and ample information disclosure. Meanwhile, exchange and sharing of information between governments and the citizens will be reinforced by creating mechanism to collect the voices of the people. The Mechanism will include holding public hearing and establishing forums for information exchange. In addition, support mechanisms for people's involvement in regional activities will be set up.

    In line with diversification of value perceptions, coordinating the interests of citizens to the level of forming consensus has become difficult in recent years. To address this situation, there is need for timely government responses and judgments, submission of widespread opinions from the citizens via regional councils, lively debate, and swift decisions. Moreover, there is need for broad consideration of adjustment methods, including arbitration via highly intelligent specialists and appropriate public polls.

Chapter 6 Policy Initiatives for Recovery Path and Visions for New Growth

Part 1 Policy Initiatives for Recovery Path

  1. Current Domestic Economic Situation

    The Japanese economy was plagued by negative growth for two successive years-fiscal 1997 and 1998. The current serious economic situation is characterized by three concurrent phenomena-short-term cycle, long-term cycle, and historical turnover.

    In the short-term cycle, the recoil in demand following the demand peak prior to the April 1997 consumption tax hike was more drastic than predicted. Although it went back to recovery, it again began to decline and stagnate following the collapse of several financial institutions from the autumn of 1997 causing distrust to financial system, and the effects of the Asian economic and currency crises.

    Looking at the long-term cycle, Japan's economy, which had grown and expanded consistently after the World War II, has entered the stage of stable maturity after the peak of a bubble-economy in the late 1980s. This was the culmination of a number of economic growth-limiting factors, including the low-birthrate, aging population, globalization, and growing environmental problems.

    In addition, Japan had reached a stage of historical turnover. For more than 100 years since the Meiji Restoration, Japan worked hard to nurture the modern industry founded on mass production of standardized goods. However, the historical tide of the world economy and human cultural trends transcended the boundaries of modern industrial society, causing transition to the era of diverse knowledge. As a result, there are more conventional systems and customs that are unsuited to today's socioeconomy.

    Based on this background, legal system and special budgets have been allocated to resurrect the financial system as part of the short-term cycle. These, together with the beneficial effects of economic stimulus measures in November 1998-the largest in history-have halted the decline in the economy.

  2. Policy Issues for Recovery Path

    It is expected that economy will move to steady recovery thanks to appropriate government policy management. It is important that the recovery path is not a short-term cycle but leads to a surge forward as a long-term cycle and historical turnover. To this end, measures that ensure drastic changes in Japan's socioeconomic system must be steadily implemented, as described in this report.

    There are various risks associated with Japan's anticipated future economic recovery path, as discussed below. When such risks become elicit, it is important that proper and strategic policies be implemented to address them.

    First, there is the risk that improvements in household incomes will be delayed reflecting severe corporate management and the employment situation. Anxiety about future employment and income could dampen consumption attitudes.

    Second, while expected growth rates of corporations are declining, it is possible that adjustments in capital investment will continue. At present, many companies in both manufacturing and non-manufacturing sectors are being pressured to restructure and downsize their unprofitable operations. A pattern of recovery in capital investment, similar to those seen in the past, is difficult to foresee.

    Third, land prices, among asset price, may continue declining for a while. For those who own land as an asset, further price declines means an erosion of asset values, which may also affect financial institutions. However, thanks to the establishment of the Financial Rebirth Law and the strengthening of public funds into financial institutions, the effects that declining land prices will give on the real economy through unstability of financial institutions should diminish.

    Fourth, if corporate restructuring extends to lay-off, this could negatively affect the harmonious labor-management relationships that had hitherto been a strength of Japanese corporations, leading to the threat of confrontation. In the manufacturing sector in particular, high labor productivity and international competitiveness are contributed to good labor-management relations. If such relations collapse, the possibility of deteriorating Japan's economic performance is high.

    Fifth, while the effects of 1997 Asian currency and financial crises on the world economy have subsided, there is a uncertain factor of slowdown in the U.S. economy.

    In order to prevent such risks, even emergency measures must be integrated with government policies that realize the ideal Japanese socioeconomy in the mid-long terms.

    First, until private-sector demand-driven recovery is evident, appropriate fiscal and financial measures must be taken. However, measures based on long-term perspectives, not just extra demand, should be adopted. In public works investment in particular, emphasis must be placed on social infrastructure measures as described in Section 3.

    Second, countermeasures are necessary to address the current severe employment situation. However, such measures should promote effective use of labor capacity, by actively creating acceptance of new employment, strengthening supply-demand adjustments function in the labor market, and upgrading human resource development and evaluation of work performance. It is important that such measures are based on the perspective of preventing deterioration in labor-management relations associated with restructuring. At the same time, even when discarding excess plant and equipment, measures must be taken to foster creation of a new investment environment, so that capital can be smoothly transferred from unprofitable areas to growth areas. Regarding measures to maintain employment stability, top emphasis must be placed on temporary employment adjustments according to economic fluctuations.

    Third, in order to restore stability in the financial system, appropriate implementation of established laws is important, but efficient distribution of capital based on financial market functions is a fundamental principle. For this reason, self-responsibility of market participants must be pursued.

Part 2 The Macro Economy in the New Growth Path

The path of new growth, realized due to implementation of measures described in Section 3, will be different from that experienced prior to that collapse of the bubble economy.

In the mid-long terms, real growth rates can not be expected to be as high as those in the pre-collapse bubble economy. Growth in Japan's labor population is already slowing and is forecast to start declining in 2005, so labor is not expected to contribute to economic growth rates. Under these conditions, the overall socioeconomy will become more efficient, and a socioeconomy allowing individuals to manifest their abilities to the maximum extent will evolve. This new socioeconomy will be driven by increased productivity.

Technological innovation, intense competition, and other factors will help prices stabilize, but as domestic supply and demand will be balanced, the current situation with concern that prices will continue to decline will disappear, leading to a period of prolonged stability.

On the employment side, changes in the industrial mechanism will accelerate due to intensified internal and external competition, leading to mismatch of industries and job sectors. There is a possibility of a trended increase in voluntary unemployment among young people. As the labor supply side get older and labor demand side focuses on the young employment of the market, an age mismatch may widen. Thus, there are many potential causes to increase unemployment. In this context, efforts must be made to minimize the unemployment rate through appropriate economic management, elimination of the labor supply-demand mismatch, life-long development of human resource, and improved evaluation of job skills.

In relation to the trade balance, the goods and service revenue surplus will contract vis-a-vis the GDP, while the investment revenue surplus is expected to expand, and the content of the current account surplus will change significantly.

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